question archive A mail-order firm processes 5,850 checks per month
A mail-order firm processes 5,850 checks per month
Subject:FinancePrice:2.86 Bought15
A mail-order firm processes 5,850 checks per month. Of these, 70 percent are for $50 and 30 percent are for $75. The $50 checks are delayed two days on average; the $75 checks are delayed three days on average. Assume 30 days per month. a-1. What is the average daily collection float? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) a-2. How do you interpret your answer? b-1. What is the weighted average delay? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b-2. Calculate the average daily float. (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) c. How much should the firm be willing to pay to eliminate the float? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) If the interest rate is 7 percent per year, calculate the daily cost of the float. (Use 365 days a year. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) e. How much should the firm be willing to pay to reduce the weighted average float by 1.5 days? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) d.
that is uncollected not available to the firm. days a-1. Average daily collection float a-2. On average, there is and b-1. Weighted average delay b-2. Average daily float C. Maximum payment d. Daily cost of float Maximum payment e
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a - 1:
Average daily collection float = Weighted average daily collection = 5,850 x (70% x 50 x 2 + 30% x 75 x 3) / 30 = 26,813
a - 2
On average, there is $ 26,813, that is uncollected and not available to the firm.
b - 1
Weighted average delay = (70% x 50 x 2 + 30% x 75 x 3) / (70% x 50 + 30% x 75) = 2.39
b - 2
Average daily float = 26,813 (already calculated in part (a) - 1 above
c. Maximum payment = Average daily float = 26,813
d. If r is the daily cost of float and R = 7% is the interest rate then:
(1 + r)n = (1 + R)
Or, (1 + r)365 = (1 + 7%)
Hence, r = 0.0185%
Hence, the daily cost of float in dollar terms = r x Averge daily float = 0.0185% x 26,813 = 4.97
e. Maximum payment = Average daily collection x Reduction in float = 5,850 x (70% x 50 + 30% x 75) / 30 x 1.5 = 16,819
