Each business day, on average, a company writes checks totaling $26,000 to pay its suppliers. The usual clearing time for the checks is 5 days. Meanwhile, the company is receiving payments from its customers each day, in the form of checks, totaling $40,000. The cash from the payments is available to the firm after 2 days. What is the amount of the firm's average net float?
Net float = 5($26,000) - 2($40,000) = $50,000
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88.
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Purple Feet Wine, Inc. receives an average of $6,000 in checks per day. The delay in clearing is typically 4 days. The current interest rate is 0.025 percent per day. Assume 30 days per month. What is the highest daily fee the company should be willing to pay to eliminate its float entirely?
Maximum daily fee = ($6,000 × 4) × 0.00025 = $6.00
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89.
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Your neighbor goes to the post office once a month and picks up two checks, one for $18,000 and one for $4,000. The larger check takes 4 days to clear after it is deposited; the smaller one takes 6 days. Assume 30 days per month. What is the weighted average delay?
Total monthly receipts = $18,000 + $4,000 = $22,000
Weighted average delay = [($18,000/$22,000) × 4] + [($4,000/$22,000) × 6] = 4.36 days |
90.
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Your firm has an average receipt size of $60. A bank has approached you concerning a lockbox service that will decrease your total collection time by 1 day. You typically receive 25,000 checks per day. The daily interest rate is 0.016 percent. What is the NPV of the lockbox project if the bank charges a fee of $210 per day?
NPV of service = $60(25,000) - ($210/0.00016) = $187,500
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