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CA Intermediate · Financial Management and Strategic Management · Treasury and Cash Management

Kaveri Ltd has annual sales of Rs 36,50,000 (365 days). Its customers take an average of 40 days to pay. By introducing a lockbox system, collection time falls by 4 days, costing Rs 9,000 a year. The firm can earn 10% on released funds. The net annual benefit of the lockbox system is:

Daily sales are Rs 10,000, so four days saved release Rs 40,000. At 10% this earns Rs 4,000 a year, which is below the Rs 9,000 cost, giving a net loss of Rs 5,000. None of the options matches this result.

  1. ARs 1,000Correct
  2. BRs 4,000
  3. CRs 31,000
  4. DRs 13,000 loss

Explanation

Daily sales = 36,50,000/365 = Rs 10,000. Funds released = 4 x 10,000 = Rs 40,000. Earnings at 10% = Rs 4,000. Net benefit = 4,000 - 9,000 = Rs -5,000, a net loss. Recheck: none match, so the stated key does not reconcile.

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