Anne Teak, the financial manager of a furniture manufacturer, is considering operating a lock-box system. She forecasts that 300 payments a day will be made to lock boxes with an average payment size of $2,000. The bank’s charge for operating the lock boxes is $0.40 a check. The interest rate is 0.011% per day.  a. If the lock box makes the cash available 2 days earlier, calculate the net daily advantage of the system. (Do not round intermediate calculations.)Net Daily Advantage                     _________________ b. Is it worthwhile to adopt the system?YesNo c. What minimum reduction in the time to collect and process each check is needed to justify use of the lock-box system? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

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Asked Feb 25, 2020
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Anne Teak, the financial manager of a furniture manufacturer, is considering operating a lock-box system. She forecasts that 300 payments a day will be made to lock boxes with an average payment size of $2,000. The bank’s charge for operating the lock boxes is $0.40 a check. The interest rate is 0.011% per day.

 

 

a. If the lock box makes the cash available 2 days earlier, calculate the net daily advantage of the system. (Do not round intermediate calculations.)

Net Daily Advantage                     _________________

 

b. Is it worthwhile to adopt the system?

  • Yes
  • No

 

c. What minimum reduction in the time to collect and process each check is needed to justify use of the lock-box system? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

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Expert Answer

Step 1

a)

Computation of net daily advantage:

Finance homework question answer, step 1, image 1

Hence, the net daily advantage is $12.

Step 2

b)

It is worthwhile to adopt this system because the net daily a...

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