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Lock Box, Cash Conversion Cycle, Interest rate

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1. What are the expected annual savings form a lock-box system that collects 300 checks per day averaging $800 each, and reduces mailing and processing times by 3.0 and 1.5 days respectively, if the annual interest rate is 7 %?

2. What is the receivables period for a firm with annual sales of $100 million, $8.4 million in average accounts receivable, and a cash conversion cycle of 60 days?

3. How much would you expect to receive for a nominal interest rate in Spain if funds can be invested in the U. S. at a rate of 7 % when inflation is expected to be 2.5 % in the U. S. and 7 % in Spain?

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Solution Summary

The solution explains three questions relating to lock box savings, cash conversion cycle and nominal interest rate between Spain and US

Solution Preview

1. The total cash freed up is
Reduction in time X checks per day X average amount of check
Total cash freed up = 1.5 X 300 X 800 = ...

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