Arshadi Wineries is considering the purchase of lockbox services from Bob's Bank. Currently, it takes six days to collect funds from customers; this would be reduced by two days with the lockbox system. The average number of payments received per day is 300 and the average cheque size is $150. Bob's will charge 5' per cheque in return for operating the lockbox system. Assume one-year T-bills yield 5%, and use a 360-day year.

What is the maximum acceptable cost per cheque that Arshadi Wineries could pay and still find the system acceptable?

Question

What is the maximum acceptable cost per cheque that Arshadi Wineries could pay and still find the system acceptable?

Quizplus · Accepted Answer

The maximum acceptable cost per cheque is determined by the interest saved from reducing the collection period by two days. The daily interest saved is calculated as: (300 cheques/day * $150/cheque * 2 days * 5% annual interest) / 360 days = $2.50 per cheque. Therefore, the maximum acceptable cost per cheque is $2.50, which corresponds to option D.

Arshadi Wineries Is Considering the Purchase of Lockbox Services from Bob's