Nickolas Industries has daily cash receipts of $350,000. A recent analysis of th

Question

Nickolas Industries has daily cash receipts of $350,000. A recent analysis of the
firm's collections indicated that customers' payments are in the mail an average of 2 days. once received, the payments are processed in 1.5 days. after the payments are deposited, the receipts clear the banking system, on average in 2.5 days. assume a 365-day year.
a. how much collection float (in days) does the firm have?
b. if the firm's opportunity cost is 11% would it be economically advisable for the firm to pay an annual fee of $84,000 for a lockbox system that reduces collection float by 2.5 days? explain why or why not.

please show work (calculation) complete. thanks

Explanation / Answer

total days to show balance = 2+1.5+2.5 = 6 days float Answer 1 a. float = 6 days b . opportunity cost = 11% 11% of 350000 = 38,500 but annual fee of $84,000 for a lockbox system $84,000 > 38,500 Hence it is not advisable NOT ADVISABLE firm will lose more than it would gain Please rate

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