The Yardscape Corp processes an estimated 200,000 checks per year from its customers.Total revenue collected by check is $40,000,000.The average float time until the funds are credited to Yardscape's checking account is 6 days.For an extra cost of $ .06/check,Yardscape's bank will install a lock-box system that will reduce float time from 6 days to 2.5 days.If Yardscape earns 3.5% on its checking account,how much per check will Yardscape make if it uses the lock-box system?
A) $.005
B) $.006
C) $.007
D) $.008

Question

Quizplus · Accepted Answer

The lock-box system reduces the float time by 3.5 days (6 - 2.5). The daily interest earned on $40,000,000 is ($40,000,000 * 0.035) / 365 = $3,835.62. The total interest saved by reducing the float time by 3.5 days is 3.5 * $3,835.62 = $13,424.67. Dividing this by the number of checks (200,000), the savings per check is $13,424.67 / 200,000 = $0.0671. Subtracting the cost of $0.06 per check, the net gain per check is $0.0071, which rounds to $0.007.

The Yardscape Corp Processes an Estimated 200,000 Checks Per Year