A mail-order firm processes 5,000 checks per month. Of these, 55 percent are for $55 and 45 percent are for $65. The $55 checks are delayed 2 days on average; the $65 checks are delayed 5 days on average. Assume each month has 30 days. The interest rate is 6 percent per year. How much should the firm be willing to pay to reduce the weighted average float by 1.4 days?
Maximum payment = Average daily float = 1.4{[(0.55 × 5,000 × $55) + (0.45 × 5,000 × $65)]/30} = $13,883
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92.
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Paper Submarine Manufacturing is investigating a lockbox system to reduce its collection time. It has determined the following:
The total collection time will be reduced by 2 days if the lockbox system is adopted. What is the NPV of adopting the lockbox system?
NPV = (2 × 300 × $3,200) - [($0.75 × 300)/0.0002] = $795,000
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93.
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Home Roasted Turkeys disburses checks every 4 weeks that average $70,000 and take 5 days to clear. How much interest can the company earn if it delays transfer of funds from an interest-bearing account that pays 0.02 percent per day for these 5 days? Ignore the effects of compound interest. Assume 52 weeks in a year.
Interest = $70,000 (5) (52/4) (0.0002) = $910
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