The financial manager of JAC Cosmetics is considering opening a lockbox in Pittsburgh. Checks cleared through the lockbox will amount to $10,000 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 $20,000 compensating balance.
a-1. Calculate the additional available cash generated by the lock-box system. (Round your answer to the nearest whole number.)
Additional available cash $
a-2. Is the lockbox worthwhile?
Yes
No
b. Suppose that the bank offers to run the lockbox for a fee of $.10 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 $