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

Quizplus · Accepted Answer

The maximum acceptable cost per cheque is determined by the savings from reducing the collection period by two days. The daily savings is calculated by multiplying the average number of payments (300) by the average cheque size ($150) and the reduction in days (2), then multiplying by the daily interest rate (5% annual yield divided by 360 days). This results in a savings of $2.50 per cheque. Since Bob's Bank charges 5¢ per cheque, the maximum acceptable cost per cheque is 4.0¢ (5¢ - 1¢ savings per cheque).

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