Jester Inc. has annual sales of $434 million. An average of 12 days elapses between the time a customer mails its payment and the funds are available to Jester. What would be the increase in the average cash balance if the use of a lockbox system would reduce the collection time by 4 days?

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Quizplus · Accepted Answer

The increase in the average cash balance can be calculated by first determining the daily sales volume, which is $434 million divided by 365 days, equal to approximately $1.19 million per day. Reducing the collection time by 4 days means that Jester Inc. would have access to an additional 4 days' worth of sales earlier, which is 4 days * $1.19 million/day = $4.76 million.