Problem 12.28 Jennifer Electrical is evaluating whether a lockbox it is currentl
ID: 2792830 • Letter: P
Question
Problem 12.28
Jennifer Electrical is evaluating whether a lockbox it is currently using is worth keeping. Management estimates that the lockbox reduces the mail float by 1.2 days and the processing by half a day. The remittances average $35,000 a day for Jennifer Electrical, with the average check being for $500. The bank charges $0.34 per processed check. Assume that there are 270 business days in a year and that the firm’s opportunity cost for these funds is 7 percent. What will the firm’s savings be from using the lockbox? (Round answer to 0 decimal places, e.g. 5,275.)
The Firm's savings from using the lockbox is $_______________
Explanation / Answer
Average daily remittance=35000
Savings from mail float and processing float=(1.8+0.5)*35000=80500
Savings from lockbox=80500*0.07=5635
Average no. of checks per day=35000/500=70
Cost of lockbox=70*0.34*270=6426