Burke Corporation is investigating a lockbox system to reduce its collection time. It has determined that on average, there are 900 payments with an average value of $425 each. If a lockbox system
Is implemented, the lockbox fee per transaction will be $0.15. If the collection time can be reduced
By 4 days, and the daily interest on money market securities is .02%, then determine the net cash
ﬂow per cheque from adopting the system.

Question

Quizplus · Accepted Answer

The net cash flow per check is $0.19. The lockbox fee is $0.15 per transaction. The interest earned on the money market securities is $0.02% per day. The collection time is reduced by 4 days. So, the interest earned is $0.02% * 4 days * $425 = $0.034. The net cash flow per check is $0.19 = $0.15 + $0.034.

Burke Corporation Is Investigating a Lockbox System to Reduce Its