Uptown Bank provides lockbox services. They estimate that you can reduce your average mail time by 2.2 days and your combined clearing and processing time by .75 days by implementing their system. Your firm receives 65 checks a day with an average value of $298 each. The current T-Bill rate is .01 percent per day. Assume a 365-day year. The bank will charge your firm $.15 per check. What is the annual net savings from installing this system?
A) $1,215.84
B) ?$1,022.15
C) $548.32
D) ?$1,473.09
E) $718.28
D) ?$1,473.09
Explanation: Annual cost = 65(365)($.15)
Annual cost = $3,558.75
Float reduction days = 2.2 + .75
Float reduction days = 2.95 days
Dollars of float saved = 2.95(65)($298)
Dollars of float saved = $57,141.50
Annual income = .0001(365)($57,141.50)
Annual income = $2,085.66
Annual net savings = $2,085.66 ? 3,558.75
Annual net savings = ?$1,473.09
Your firm should not install the lockbox system.
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