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Estimating the annual savings due to lock-box arrangement

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Community Hospital has annual net patient revenues of $150 million. At the present time, payments received by the hospital are not deposited for six days on average. The hospital is exploring a lock-box arrangement that promises to cut the six days to one day. If these funds released by the lock-box arrangement can be invested at 8 percent, what will the annual savings be? Assume the bank fee will be $2,000 per month.

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Solution depicts the steps to estimate the annual savings due to proposed lock-box arrangement.

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Please refer attached file for better clarity of calculations.

Annual net patient revenues=AR=$150,000,000
Assume working ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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