Question

The firm receives an average of $20,000 in checks per day. The weighted average delay in clearing the checks received is 3 days. Meanwhile, the firm writes an average of $17,000 in checks to pay its suppliers per day. The usual clearing time for the checks the firm wrote is 2 days. The current interest rate is 0.015 percent per day. What is the most the firm should be willing to pay today (in a lump sum today) to eliminate its float entirely? A) 3000 B) 26000 C) 34000 D) 37000 E) 60000

Answer 1

Answer :- Option B = 26000

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Explanations :-

Each business day companies recieves checks to customers of $20,000 and such checks takes 3 days time to clear

Each business day companies writing checks to suppliers of $17,000 and such checks takes 2 days time to clear,

Collection Float = Avarage amount of check × time to recieve

= -$20,000 × 3

= -$60,000

Disbursement Float = Average amount of check × time to clear

= $17000 × 2

   = $34,000

Net Float = Disbursement Float + collection Float

= $34000 + -$60,000

   = $26,000