Question: Murkywater Company is considering a lockbox system. Its collection delay is currently 12 days. Reduction in mailing time = 1.5 day Reduction in clearing time

Murkywater Company is considering a lockbox system. Its collection delay is currently 12 days.

  • Reduction in mailing time = 1.5 day
  • Reduction in clearing time = 1.5 day
  • Reduction in firm processing time = 1.0 day
  • Total = 4.0 days

The following is also known:

  • Daily interest on Treasury bills = 0.025%
  • Average number of daily payments to lockboxes = 4,000
  • Average size of payment = $400

 

A local bank has agreed to operate this lockbox system for a fee of $0.25 per check processed. 


What are the costs associated with the proposal?

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