You Are Considering Implementing a Lockbox System for Your Firm

question 12

Multiple Choice

You are considering implementing a lockbox system for your firm.The system is expected to reduce the average collection time by 2.8 days.On an average day,your firm receives 2,419 checks with an average value of $1,287 each.The daily interest rate on Treasury bills is 0.016 percent.The bank charge per check is $0.30.What is the net present value of this lockbox arrangement?

• A)-$4,535,625
• B)-$2,611,575
• C)$187,419
• D)$4,181,483
• E)$13,252,733

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Definitions:

Indirect Method

An accounting technique used to prepare the cash flow statement, adjusting net income for changes in non-cash working capital and non-operational gains and losses.

Direct Method

A method of allocating service department costs directly to production departments without considering inter-service department flows.

Accounts Receivable

Funds that clients or customers owe to a company for products or services provided but for which payment has not yet been received.

Accounts Payable

Money owed by a company to its suppliers or vendors for goods and services received, representing a liability on the balance sheet.