A Firm That Is Located in New York Receives on Average

question 9

Multiple Choice

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

• A) $200
• B) $400
• C) $1,000
• D) $1,200

---

Definitions:

Outstanding Shares

The total number of shares of stock that are owned by stockholders on any particular date.

Stockholders' Equity

The residual interest in the assets of a corporation after deducting liabilities, representing ownership interest.

Treasury Stock

Shares that were originally issued and fully paid for but have since been bought back by the issuing company, reducing the amount of outstanding stock.

Purchases

The acquisition of goods or services in exchange for monetary payment in the course of business operations.