The funds from lockbox bank to the company bank

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Reference no: EM131963728

A company is considering two proposals for lockboxes. In common to both are each lock box will have on average 400 checks per day with average value $200. In both offers the float is being reduce from 3 days to 1 day and in both offers there will be 3 lockboxes. The discount rate per year is 3.65% and per day is 3.65%/365 = .01%.

Choice #1 bank charges $.0067 per check and $10 to transfer the funds from lockbox bank to the company’s bank.

Choice #2 bank charges $.0041 per check and $10 to transfer the funds from lockbox bank to the company’s bank plus an annual fee of $400.

Which is the better deal?

Would a reduction of the number of checks to 300 change your answer?

Would an increase of the number of checks to 500 change your answer?

Please show all work.

Reference no: EM131963728

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