You are considering implementing a lockbox system for your ﬁrm. The system is expected to reduce the collection time by 2 days. On an average day, your ﬁrm receives 1,650 checks with an average
Value of $910 each. The daily interest rate on Treasury bills is .02 percent. The bank charge per
Check would be $.35. What is the net present value of this lockbox arrangement?

Question

Quizplus · Accepted Answer

The net present value of the lockbox arrangement is $115,500. The lockbox system is expected to reduce the collection time by 2 days. On an average day, the firm receives 1,650 checks with an average value of $910 each. The daily interest rate on Treasury bills is .02 percent. The bank charge per check would be $.35. The net present value of the lockbox arrangement is calculated as follows:NPV = (Reduction in collection time * Daily interest rate * Average value of checks * Number of checks) - (Bank charge per check * Number of checks)NPV = (2 days * .02% * $910 * 1,650) - ($.35 * 1,650)NPV = $115,500

You Are Considering Implementing a Lockbox System for Your ﬁRm