Additional available cash generated by the lock-box system

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Reference no: EM132032198

The financial manager of JAC Cosmetics is considering opening a lockbox in Pittsburgh. Checks cleared through the lockbox will amount to $10,000 per day. The lockbox will make cash available to the company three days earlier than is currently the case.

Suppose that the bank offers to run the lockbox for a $20,000 compensating balance.

a-1. Calculate the additional available cash generated by the lock-box system. (Round your answer to the nearest whole number.)

Additional available cash $

a-2. Is the lockbox worthwhile?

Yes

b. Suppose that the bank offers to run the lockbox for a fee of $.10 per check cleared instead of a compensating balance. Assume an interest rate of 6% per year. What must the average check size be for the fee alternative to be less costly? Use a 365-day year. (Round your answer to the nearest whole number.)

Average check size $

Reference no: EM132032198

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