A company is currently waiting for 4 days to collect money. Through a lock box arrangement,...

80.2K

Verified Solution

Question

Finance

A company is currently waiting for 4 days to collect money.Through a lock box arrangement, the funds could be collected thenext day (1 day float). The company is considering using 4 lockboxes strategically located in areas where it has clusters ofcustomers. The company expects to have 5,000 checks processed perday, per lockbox, and the average amount of each check is $520. Thelockbox arrangement has a fee of $0.463 per check. There isadditional charge $25 at the end of each day for a wire transfer ofthe collected balance to the company's bank. The hurdle return forthe company is .03% per day.
1. How much is the benefits from lockboxes?
2. How much is the PV of the lockbox proposal?
3. How much is the NPV for the lockbox proposal?

Answer & Explanation Solved by verified expert

4.4 Ratings (771 Votes)

Answer to part 1 a b ab a0463 ab x 033 Checks Avg Amount per check Total amount Cost Benefit Net Benefit Benefit Cost Fees Additional Interest Saved 5000 520 2600000 2315 25 234000 See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

A company is currently waiting for 4 days to collect money.Through a lock box arrangement, the funds could be collected thenext day (1 day float). The company is considering using 4 lockboxes strategically located in areas where it has clusters ofcustomers. The company expects to have 5,000 checks processed perday, per lockbox, and the average amount of each check is $520. Thelockbox arrangement has a fee of $0.463 per check. There isadditional charge $25 at the end of each day for a wire transfer ofthe collected balance to the company's bank. The hurdle return forthe company is .03% per day.1. How much is the benefits from lockboxes?2. How much is the PV of the lockbox proposal?3. How much is the NPV for the lockbox proposal?