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Murkywater Company is considering a lockbox system. Its collection delay is currently 12 days.

Reduction in mailing time = 1.5 day
Reduction in clearing time = 1.5 day
Reduction in firm processing time = 1.0 day
Total = 4.0 days
The following is also known:

Daily interest on Treasury bills = 0.025%
Average number of daily payments to lockboxes = 4,000
Average size of payment = $400

Required:
A local bank has agreed to operate this lockbox system for a fee of $0.25 per check processed. What are the costs associated with the proposal?

Respuesta :

Answer:

$6,400,000

Explanation:

Reduction in mailing time = 1.5 day

Reduction in clearing time = 1.5 day

Reduction in firm processing time = 1.0 day

Total = 4.0 days

Daily interest on Treasury bills = 0.025%

Average number of daily payments to lockboxes = 4,000

Average size of payment = $400

The value of the proposal will be the average number of daily payments to lockboxes multiplied by the total of 4 days which is then multiplied by the average payment size. This will be:

= 4000 × $400 × 4

= $6,400,000

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