Cleveland Masks and Costumes Inc. (CMC) has a majority
of its customers located in the states of California and Nevada.
Keystone National Bank, a major west coast bank, has agreed to
provide a lockbox system to CMC at a fixed fee of $50,000 per
year and a variable fee of $.50 for each payment processed by the
bank. On average, CMC receives 50 payments per day, each
averaging $20,000. With the lockbox system, the company’s
collection float will decrease by 2 days. The annual interest rate
on money market securities is 6%. If CMC makes use of the
lockbox system, what would be the net benefit to the company?
Use 365 days per year.