Question

Uptown Bank provides lockbox services. They estimate that you can reduce your average mail time by 2.2 days and your combined clearing and processing time by .75 days by implementing their system. Your firm receives 65 checks a day with an average value of $298 each. The current T-Bill rate is .01 percent per day. Assume a 365-day year. The bank will charge your firm $.15 per check. What is the annual net savings from installing this system?

Answer 1

Answer: $1473.067

Step-by-step explanation:

First, we calculate the total time that's saved by the firm when it installs the lockbox services. This will be:

= 2.2 days + 0.75 days

= 2.95 days

Then, the gross amount that the firm will save will be:

= 65 × 2.95 × 298 × 0.01%

= $5.7142 per day

Since the bank charges the firm $0.15 per check and the firm receives 65 checks per day, the total cost to the firm will then be:

= 65 × $0.15

= $9.75 per day

The net loss will then be calculated as:

= $9.75 - $5.7142

= $4.0358 per day

Then, to get that for annual, we multiply the above value by 365. This will be:

= $4.0358 × 365

= $1473.067 per annum.