Question:
Management of Radker Corp. is considering a lockbox system. The bank will charge $10,000 annually for the service, which will save the firm approximately $5,000 in processing costs. The lockbox system will reduce the float for cash receipts by three days. Assuming that the average daily receipts are equal to $100,000, and short-term interest costs are 5%, calculate the benefit or loss from adopting the lockbox system.
1. $5,000 loss.
2. $10,000 loss.
3. $10,000 benefit.
4. $5,000 benefit.