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    Lock Boxes

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    Lock Boxes - Anne Team, the financial manager of a furniture manufacturer, is considering operating a lock-box system. She forecasts that 400 payments a day will be made to lock boxes with an average payment size of $2,000. The bank's charge for operating the lock boxes is $.40 a check. The interest rate is .015% per day.

    a) if the lock box saves 2 days in collection float, is it worthwhile to adopt the system?

    b) What minimum reduction in the time to collect and process each check is needed to justify use of the lock-box system?

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    a) if the lock box saves 2 days in collection float, is it worthwhile to adopt the system?

    a) No of payments per day= 400

    Average size of payment= $2,000

    Rate of interest per day= 0.015%

    Saving in days= 2

    Increase in balance= $1,600,000 =400*2000*2

    Invested ...

    Solution Summary

    Answers questions on lock boxes- is it worthwhile to adopt the system if the lock box saves 2 days in collection float; the minimum reduction in the time to collect and process each check that is needed to justify the use of the lock-box system.

    $2.19

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