ou are considering implementing a lockbox system for your firm. The system is expected to reduce the collection time by 3 days. On an average day, your firm receives 1,370 checks with an average value of $880 each. The daily interest rate on Treasury bills is 0.01 percent. The bank charge per check would be $.25. What is the net present value of this lockbox arrangement

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09-12-2021
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ou are considering implementing a lockbox system for your firm. The system is expected to reduce the collection time by 3 days. On an average day, your firm receives 1,370 checks with an average value of $880 each. The daily interest rate on Treasury bills is 0.01 percent. The bank charge per check would be $.25. What is the net present value of this lockbox arrangement

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francocanacari francocanacari · Answer 1 · 2021-12-15T04:11:02+01:00

The net present value of this lockbox arrangement is $1,205,378.06.

Since you are considering implementing a lockbox system for your firm, and on an average day, your firm receives 1,370 checks with an average value of $ 880 each, and the daily interest rate on Treasury bills is 0.01 percent, and the bank charge per check would be $ 0.25, to determine what is the net present value of this lockbox arrangement, the following calculation must be performed:

((1370 x 880) x 1.0001) - (1370 x 0.25) = X
1,205,720.56 - 342.5 = X
1,205,378.06 = X

Therefore, the net present value of this lockbox arrangement is $1,205,378.06.

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