Global Markets receives an average of 122 checks a day with an average amount of $498 per check. The installation of a lockbox system should reduce the average collection time by 3.1 days at a cost of $.32 per check. The daily interest rate on Treasury bills is .012 percent. What is the average daily cost of the lockbox system?

Question

Quizplus · Accepted Answer

1. Calculation of current daily interest cost:

Average amount per check = $498
Number of checks received per day = 122

Therefore, total amount of checks received per day = $498 * 122 = $60,756

Daily interest rate = 0.012% = 0.00012 (as it is given in decimal)

Daily interest cost = $60,756 * 0.00012 = $7.29

2. Calculation of daily cost of lockbox system:

Cost per check = $0.32
Number of checks received per day = 122

Therefore, total cost of lockbox system per day = $0.32 * 122 = $39.04

3. Comparison of daily interest cost and daily lockbox system cost:

As the daily interest cost ($7.29) is greater than the daily lockbox system cost ($39.04), it is beneficial for Global Markets to install the lockbox system. Therefore, the answer is C.

Global Markets Receives an Average of 122 Checks a Day