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NEW QUESTION: 1
A retail mail order entity currently uses a central collection system that requires all checks to be sent to its headquarters. An average of 6 days is required for mailed checks to be received. 3 days for the entity to process them, and 2 days for the checks to clear through the bank. A proposed lockbox system would reduce the mailing and processing time to 2 days and the check clearing time to 1 day. The entity has an average daily collection of US $150,000. How much will the average cash balance increase by if the entity adopts the lockbox system?
A. US $750,000
B. US $1,200,000
C. US $450,000
D. US $600,000
Answer: B
Explanation:
Checks are currently tied up for 11 days 6 for mailing, 3 for processing, and 2 for clearing). If that period were reduced to 3 days the entity's cash balance would increase by US $1.200.000 $150,000 per day x 8 days).

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