CA Intermediate · Financial Management and Strategic Management · Treasury and Cash Management
Kaveri Ltd has daily cheque collections of ₹5,00,000. A lockbox arrangement will cut the collection time by 2 days at an annual bank charge of ₹2,40,000. The firm can invest released funds at 8% p.a. (360-day year). The net annual benefit of the lockbox is:
Funds released equal ₹5,00,000 × 2 days = ₹10,00,000, earning 8% = ₹80,000 a year. Against a bank charge of ₹2,40,000 this gives a net loss of ₹1,60,000, so the lockbox is not worthwhile.
- A₹(1,60,000)...
- B₹80,000 gain
- C₹(80,000) lossCorrect
- D₹1,60,000 gain
Explanation
Cash released = 5,00,000 × 2 = ₹10,00,000. Annual interest earned = 10,00,000 × 8% = ₹80,000. Less bank charge ₹2,40,000 gives net loss of ₹1,60,000. So none of the listed figures equals this.
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