Aqua System Inc expects to have 16979900 in credit sales dur

Aqua System Inc. expects to have $16,979,900 in credit sales during the coming year. Currently all checks are sent to the home office. A proposed lockbox system can eliminate 2 days of float, releasing funds which, when invested, will earn 6.14 percent per year. What annual savings can Aqua System expect if the system is implemented? Use a 365-day year.

Solution

Step1:Calculate daily credit sales $16,979,900/365 = $46,520,27

Step2:Calculate credit sales over 2 days of eliminated float $46,520.27 *2=$93040.55

Step3:Calculate interest received on investing releasing funds:$93040.55*0.0614= $5713

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