Explore BrainMass
Share

# Lock Box

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

13. The financial manager of JAC Cosmetics is considering opening a lock box in Pittsburgh. Checks cleared through the lock box will amount to \$300,000 per month. The lock box will make cash available to the company three days earlier than is currently the case.

a. Suppose that the bank offers to run the lock box for a \$20,000 compensating balance. Is the lock box worthwhile?
b. Suppose that the bank offers to run the lock box for a fee of \$.10 per check cleared instead of a compensating balance. What must the average check size be for the fee alternative to be less costly? Assume an interest rate of 6 percent per year.
c. Why did you need to know the interest rate to answer (b) but not to answer (a)?

#### Solution Preview

13 The financial manager of JAC Cosmetics is considering opening a lockbox in Pittsburgh. Checks cleared through the lockbox will amount to \$300,000 per month. The lockbox will make cash available to the company three days earlier than is currently the case.

a. Suppose that the bank offers to run the lockbox for a \$20,000 compensating balance. Is the lockbox worthwhile?

Amount of checks cleared per month (30 days)= \$300,000
Therefore, Amount of checks cleared per day= \$10,000 =300000/ 30

Lock box makes ...

#### Solution Summary

Evaluates a lock box system.

\$2.19
Similar Posting

## Lock boxes: 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?

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?

View Full Posting Details