The financial manager of JAC Cosmetics is considering opening a lockbox in Pittsburgh. Checks cleared through the lockbox will amount to $26,000 per day. The lockbox will make cash available to the company three days earlier than is currently the case. Suppose that the bank offers to run the lockbox for a $39,600 compensating balance, answer the following: a-1. Calculate the additional available cash generated by the lock-box system. Additional available cash a-2. Is the lockbox worthwhile? Yes O No b. Suppose that the bank offers to run the lockbox for a fee of $0.26 per check cleared instead of a compensating balance. Assume an interest rate of 6% per year. What must the average check size be for the fee alternative to be less costly? Use a 365-day year. (Round your answer to the nearest whole number.) Average check size

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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The financial manager of JAC Cosmetics is considering opening a lockbox in Pittsburgh. Checks cleared through the lockbox will
amount to $26,000 per day. The lockbox will make cash available to the company three days earlier than is currently the case.
Suppose that the bank offers to run the lockbox for a $39,600 compensating balance, answer the following:
a-1. Calculate the additional available cash generated by the lock-box system.
Additional available cash
a-2. Is the lockbox worthwhile?
Yes
O No
b. Suppose that the bank offers to run the lockbox for a fee of $0.26 per check cleared instead of a compensating balance. Assume an
interest rate of 6% per year. What must the average check size be for the fee alternative to be less costly? Use a 365-day year. (Round
your answer to the nearest whole number.)
Average check size
Transcribed Image Text:The financial manager of JAC Cosmetics is considering opening a lockbox in Pittsburgh. Checks cleared through the lockbox will amount to $26,000 per day. The lockbox will make cash available to the company three days earlier than is currently the case. Suppose that the bank offers to run the lockbox for a $39,600 compensating balance, answer the following: a-1. Calculate the additional available cash generated by the lock-box system. Additional available cash a-2. Is the lockbox worthwhile? Yes O No b. Suppose that the bank offers to run the lockbox for a fee of $0.26 per check cleared instead of a compensating balance. Assume an interest rate of 6% per year. What must the average check size be for the fee alternative to be less costly? Use a 365-day year. (Round your answer to the nearest whole number.) Average check size
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