Jan Buckingham, owner of Buck’s Corporation, realizes that checks received through the mail do not reach the bank on a timely basis. She wants to deter- mine whether a lockbox system is cost-justified. The average guest incurs $240 of charges that are recorded as direct bill receivables when the guest checks out. The total charged to direct bill accounts annually is $2,400,000. Assume a lock- box system would result in (1) checks being banked 2 days earlier than under the present system, (2) an average check size of $240, and (3) a cost per check processed of $.10. Further assume Buck’s can invest funds at an annual rate of 10%. Assume a banking year of 360 days.

Required:

1. Determine the breakeven amount using a lockbox system.

2. Assume Buck’s uses the lockbox system. How much interest for the year net of (in excess of) the bank’s processing costs is earned?