Assume the Following Facts About a Firm Would a Lock Box System That Reduces Check Clearing Time

question 22

Multiple Choice

Assume the following facts about a firm: $\begin{array}{lr}\text {Antulal cost to maint ain a lock box }&\$1,500\\\text {system Cost to processs each check }&\$0.15\\\text {Average amount of each check received }&\$1,500\\\text { Number of checks received per year}&4,000\\\text { Interest rate on borrowed funds}&8.0\%\\\end{array}$
Would a lock box system that reduces check clearing time from six to three days be justified?

• A) Yes, because it would save more than $1,800 annually.
• B) No, because it would cost $2,100 annually.
• C) Yes, because of the additional convenience of a shorter clearing time.
• D) Indifferent, the cost and expense are about the same.

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