Question

Your firm has an average receipt size of $155. A bank has approached you concerning a lockbox service that will decrease your total collection time by one day. You typically receive 6,700 checks per day. The daily interest rate is 0.016 percent. The bank charges a lockbox fee of $120 per day.

a. What is the NPV of accepting the lockbox agreement? (Round your answer to 2 decimal places. (e.g., 32.16))



NPV $


b. What would the net annual savings be if the service were adopted?


(Use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))



Net annual savings $

Answer 1

a) 46.16 dollar per day favorable

b) accpeting the offer will provide a gain for 16,848.4 dollar

Step-by-step explanation:

interest revenue for the decreased collection time:

6,700 check x 155 dollar each x 0.016% = 166,16‬

We will be taking the cash from teh customer earlier thus, earning interest on this amount

The cost will be 120 dollar the bank charges per day

Giving a net effect of 46.16 dollars in favor of the company per day

annual savings: 46.16 x 365 = 16.848,4‬