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The Baker Co. receives an average of 230 checks a day. The average amount per check...

The Baker Co. receives an average of 230 checks a day. The average amount per check is $1,150. The firm is considering a lockbox system which it anticipates will reduce the average collection time by 3 days. The bank charges $.25 a check for this service. The daily interest rate on Treasury bills is .008 percent. What is the amount of the expected daily savings of the lockbox system? What is the average daily cost of the lockbox system? (SHOW YOUR WORK)

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Answer #1
Amount of expected daily savings No of check received*Value of check*Daily interest rate
Amount of expected daily savings 230*1150*0.008%
Amount of expected daily savings $21.16
Thus, amount of expected daily savings of lockbox system is $21.16
Average daily costs of lockbox system No of check received*Bank charges per check
Average daily costs of lockbox system 230*0.25
Average daily costs of lockbox system $57.50
Thus, average daily costs of lockbox system is $57.50
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