Asked by Michael Hernandez on May 01, 2024
Verified
The Baker Co. receives an average of 230 cheques a day. The average amount per cheque is $1,150. The firm is considering a lockbox system which it anticipates will reduce the average collection time by 3 days. The daily interest rate on Treasury bills is.008 %. What is the amount of the expected daily savings of the lockbox system?
A) $4.68
B) $6.35
C) $46.82
D) $63.48
E) $77.78
Lockbox System
A service offered by banks to companies for the collection of payments from customers, where the payments are sent directly to a post office box rather than to the company.
Treasury Bills
Short-term government securities issued at a discount from the face value and maturing in a year or less, representing a secure investment.
Collection Time
The typical period a business waits to receive money owed by its customers.
- Recognize the influence of lockbox systems in minimizing the duration of collections.
- Evaluate the benefits of reducing collection and disbursement times.
Verified Answer
FH
fatema hassnMay 03, 2024
Final Answer :
D
Explanation :
The expected daily savings from the lockbox system can be calculated by first determining the total value of cheques received daily, which is 230 cheques * $1,150 = $264,500. Reducing the collection time by 3 days means the firm can use the funds 3 days earlier. The daily interest rate is .008%, so the interest for 3 days is 3 * .008% = .024%. The daily savings are then $264,500 * .024% = $63.48.
Learning Objectives
- Recognize the influence of lockbox systems in minimizing the duration of collections.
- Evaluate the benefits of reducing collection and disbursement times.