The Baker Co. receives an average of 230 cheques a day. The average amount per cheque is $1,150. The firm is considering a lockbox system which it anticipates will reduce the average collection time by 3 days. The daily interest rate on Treasury bills is.008 %. What is the amount of the expected daily savings of the lockbox system?

Question

Quizplus · Accepted Answer

The expected daily savings from the lockbox system can be calculated by first determining the total value of cheques received daily, which is 230 cheques * $1,150 = $264,500. Reducing the collection time by 3 days means the firm can use the funds 3 days earlier. The daily interest rate is .008%, so the interest for 3 days is 3 * .008% = .024%. The daily savings are then $264,500 * .024% = $63.48.