I am posting this question again, if anyone has the better method, please help me solve.
Has anyone have better method to solve this question:
Becker B2 Module 5:
Newman products has received proposal from several banks to establish lock box system to speed up receipts. Newman receives an average of 700 checks per day averaging $1800, and its cost of short term funds is 7% per year. Assuming that all proposals will produce equivalent processing results and using a 360-day year, which one of the following proposals is optimal for Newman?
A compensating balance of $1,750,000
b. A fee of $0.35 per check plus 0.01 percent of the amount collected
c. A fee of 0.03% of the amount collected
d A flat fee of $125,000 per year.
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you will have to calculate the cost per each method specified in the choice. Of all the choices, choice A is least costing.
A. 1,750,000*7%= 122,500
B. ((0.35*700)+(1800*0.01%*700))*360=133,560.=== (245+126)*360
C. 0.03%*700*1800*360=136,080
D: 125,000
hope that helps.
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