Question

You are considering implementing a lockbox system for your firm. The system is expected to reduce the average collection time by 1.2 days. On an average day, your firm receives 320 checks with an average value of $99 each. The daily interest rate on Treasury bills is 0.014 percent. What is the anticipated amount of the daily savings if this system is implemented?

Answer 1

$532.224

Step-by-step explanation:

A lockbox system is a working capital management technique that accelerates cash collection. By using a lockbox system, daily collections of $31,680 ($320 x 99) will contribute to accelerated collection/savings of $38,016 ($31,680 x 1.2). This can be used to invest in Treasury bills that will provide daily savings/return on investment of $532.224 ($38,016 x 0.014%).