Average cheque size be for fee alternative to be less costly

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Reference no: EM131323336

Lockboxes. The financial manager of JAC Cosmetics is considering opening a lockbox in Calgary. Cheques cleared through the lockbox will amount to $300,000 per month. The lockbox will make cash available to the company three days earlier.

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

b. Suppose that the bank offers to run the lockbox for a fee of .10 per cheque cleared instead of a compensating balance. What must the average cheque size be for the fee alternative to be less costly? Assume an interest rate of 6% per year.

c. Why did you need to know the interest rate to answer b but not answer a?

Reference no: EM131323336

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