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Float   Simon Corporation has daily cash receipts of ​$61,000. A recent analysis of its collections indicated...

Float   Simon Corporation has daily cash receipts of ​$61,000. A recent analysis of its collections indicated that​ customers' payments were in the mail an average of 3 days. Once​ received, the payments are processed in 2.5 days. After payments are​ deposited, it takes an average of 2 days for these receipts to clear the banking system.

a.  How much collection float​ (in days) does the firm currently​ have?

b.  If the​ firm's opportunity cost is 8​%, would it be economically advisable for the firm to pay an annual fee of ​$17,500 for a lockbox system to reduce collection float by 4 ​days?

c.    What would the​ company's opportunity cost have to be to make the ​$17,500 fee​ worthwhile?

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jeff jeffy answered 1 year ago
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