1. How much is the average daily collections? Format: 111,1112. How much is the increase in the average cash balance due to the three-day reduction in the collection float if the new system is adopted? Format: 1,111,1113. How much is the gross benefit (annual return on the investment of increase in the average cash balance) of the lockbox system? Format: 11,1114. Should the company make the investment and adopt the lockbox system? Yes or No JJF Wholesale has an average collection delay of 8 days from the time a customer mails a check tothe time the funds become collected funds that it can draw on. Management has concluded that byusing a lockbox system it will be able to reduce collection time to 5 days. The cost of this lockboxsystem is expected to be $32,000 per year to operate.The following information is known:Annual bank interest3%Average number of daily payments to lockbox 1,000Average size of payments$400The company needs to determine whether the lockbox system is a worthwhile investment. It will needto calculate the benefits that will be received and compare them to the cost of the new system.

JJF Wholesale has an average collection delay of 8 days from the time the customer mails the check…

Answered: . How much is the average daily…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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1. How much is the average daily collections? Format: 111,111

2. How much is the increase in the average cash balance due to the three-day reduction in the collection float if the new system is adopted? Format: 1,111,111

3. How much is the gross benefit (annual return on the investment of increase in the average cash balance) of the lockbox system? Format: 11,111

4. Should the company make the investment and adopt the lockbox system? Yes or No

JJF Wholesale has an average collection delay of 8 days from the time a customer mails a check to
the time the funds become collected funds that it can draw on. Management has concluded that by
using a lockbox system it will be able to reduce collection time to 5 days. The cost of this lockbox
system is expected to be $32,000 per year to operate.
The following information is known:
Annual bank interest
3%
Average number of daily payments to lockbox 1,000
Average size of payments
$400
The company needs to determine whether the lockbox system is a worthwhile investment. It will need
to calculate the benefits that will be received and compare them to the cost of the new system.

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