Burke Corporation Is Investigating a Lockbox System to Reduce Its

question 299

Multiple Choice

Burke Corporation is investigating a lockbox system to reduce its collection time. It has determined that on average, there are 900 payments with an average value of $425 each. If a lockbox system is implemented, the lockbox fee per transaction will be $0.15. If the collection time can be reduced by 4 days, and the daily interest on money market securities is.02%, then determine the net cash flow per cheque from adopting the system.

• A) $0.19
• B) $0.20
• C) $0.21
• D) $0.22
• E) $0.23

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Definitions:

Straight-Line Amortization

A method of evenly spreading the cost of an intangible asset over its useful life.

Discount at Issuance

The difference between the face value of a bond and its selling price when the bond is sold for less than its face value.

Effective Rate of Interest

The actual cost of borrowing or the actual return on savings, taking into account the effect of compounding interest.

Straight-Line Amortization

A method of allocating the cost of an intangible asset over its useful life in equal installments.