A Firm That Is Located in Toronto Receives on the Average

question 64

Multiple Choice

A firm that is located in Toronto receives on the average 2,000 cheques a day from its customers in the Vancouver area.Average payment per cheque is $1,500.A bank in Vancouver is offering a lock-box arrangement for collection and processing of these cheques at a cost of $0.50 per cheque.This arrangement will reduce the float by two days.The daily interest rate for the firm is 0.02 percent.What is the net saving from the lock-box arrangement?

• A)$200
• B)$400
• C)$1,000
• D)$1,200 Reduction in availability float = 2,000 x 1,500 x 2 days
• = 6,000,000
• Interest savings = 6,000,000 x 0.0002 = 1,200
• Cost of processing = 0.5 x 2,000 = 1,000

---

Definitions:

Qualified Education Expenses

Expenses for education that qualify for tax benefits like deductions and credits, usually including tuition and fees.

Annuity Contract

A financial product sold by insurance companies that pays out income, and can be used as part of a retirement strategy to provide a steady income stream in later years.

Life Expectancy Tables

Charts used by the IRS to calculate required minimum distributions for retirement accounts.

Annual Contributions

Yearly monetary additions made to retirement savings plans, investment accounts, or other savings vehicles.