Scribd
Upload
55 views2 pages

Lockbox System Problems

Uploaded by

yuze
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
Download as pdf or txt
55 views2 pages

Lockbox System Problems

Uploaded by

yuze
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
Download as pdf or txt
Download as pdf or txt
You are on page 1/ 2

Assume that the average number of daily payments to a lock-box is 200, the average size of the

payment is $1,000, the rate of interest per day is 0.02% (i.e., 0.0002), the savings in mail time is 2
days, and the savings in processing time is 1 day. What is the daily return from operating the lock-
box?

What are the expected annual savings from a lockbox system that collects 200 checks per day
averaging $500 each, and reduces mailing and processing times by 2.0 and 0.5 days, respectively,
if the annual interest rate is 6%?

A firm has daily cash receipts of $300,000. A bank has offered to provide a lockbox
service that will reduce the collection time by 3 days. The bank requires a monthly
fee of $2,000 for providing this service. If money market rates are expected to

Foster Inc. is considering implementing a lock box collection system at a cost of $80,000 per year.
Annual sales are $90 million, and the lockbox system will reduce collection time by 3 days. If Foster
can invest funds at 8%, should it use the lockbox system? Assume a 360-day year.
a. Yes, producing savings of $140,000 per year.
b. Yes, producing savings of $60,000 per year.
c. No, producing a loss of $20,000 per year.
d. No, producing a loss of $60,000 per year.

A company has daily cash receipts of $150,000. The treasurer of the company has
investigated a lock box service whereby the bank that offers this service will reduce the
company's collection time by four days at a monthly fee of $2,500. If money market rates
average 4% during the year, the additional annual income (loss) from using the lock box
Cleveland Masks and Costumes Inc. (CMC) has a majority of its customers located in the states of California and
Nevada. Keystone National Bank, a major west coast bank, has agreed to provide a lockbox system to CMC at a
fixed fee of $50,000 per year and a variable fee of $0.50 for each payment processed by the bank. On average,
CMC receives 50 payments per day, each averaging $20,000. With the lockbox system, the company's collection
float will decrease by 2 days. The annual interest rate on money market securities is 6%. If CMC makes use of the
lockbox system, what would be the net benefit to the company? Use 365 days per year. (M)

Cross Collectibles currently fills mail orders from all over the U. S. and receipts come in to headquarters in
Little Rock, Arkansas. The firm's average accounts receivable (A/R) is $2.5 million and is financed by a bank loan
with 11 percent annual interest. Cross is considering a regional lockbox system to speed up collections that it
believes will reduce A/R by 20 percent. The annual cost of the system is $15,000. What is the estimated net
annual savings to the firm from implementing the lockbox system?

You might also like