Bunsen Company’s cash collections average $10,000 per day. Because Bunsen’s customers are scattered across the country, the average interval between when a customer writes a check and when the check clears and the amount is credited to Bunsen’s account is seven days. Bunsen could reduce this to three days by implementing a lockbox system. With a lockbox system, a company makes arrangements with a bank to retrieve customer checks from a post office box and deposit them directly into the company’s account. Bunsen’s cash payments also average $10,000 per day. Bunsen’s checks are drawn on a bank located in a major metropolitan area, so the check-clearing time is very short—two days. If Bunsen were to use a checking account in a small rural bank, the average check-clearing time would increase to five days.

1. How much would Bunsen’s net interest income increase if it were to implement the lockbox system and switch its checking account to a small rural bank? Assume that the interest rate on checking accounts is 6% per annum based on the average daily balance.

2. What if the banking fee for operating the lockbox system were $4,000 per year— should the lockbox system be implemented?