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The lockbox service would cause a loss, not a gain, because the annual fees would be greater than the interest income that could be earned on the increased investable balances.
The lockbox service would cause a loss, not a gain, because the annual fees would be greater than the interest income that could be earned on the increased investable balances.
By reducing the collection time by 4 days, the company will increase its average cash balance by $600,000 ($150,000 × 4). This will earn the company $24,000 in interest during the year. However, the cost of the new system is $2,500 per month, or $30,000 per year. Therefore, the new system would have a net cost to the company of $6,000.
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