4. value: 10.00 points A mail-order firm processes 5,100 checks per month. Of th

Question

4. value: 10.00 points A mail-order firm processes 5,100 checks per month. Of these, 60 percent are for $41 and 40 percent are for $73. The $41 checks are delayed two days on average; the $73 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.) Average daily collection float $ a-2.How do you interpret your answer? On average, there is $ that is (Click to select) and (Click to select) to the firm. 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.) Weighted average delay |days b-2.Calculate the average daily float. (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Average daily float S 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.) Maximum payment d. 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.) Daily cost of the float S e. How much should the firm be willing to pay to reduce the weighted average float by 15 days? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Maximum payment References eBook & Resources Worksheet Difficulty: 1 Basic Section: 27.2 Understanding Float : 0 0 e os 9 9:04 AM 12/8/2017

Explanation / Answer

Total achecks = 5100 60% for $41 (delayed by 2 days on average) 40% for $73 (delayed by 3 days on average) A What is average daily float? How do you interpret? = (5100*$41*60%*2+5100*$73*40%*3)/30days =$23256 On average, there is $23256 that is uncollected and not available to firm B Weighted average delay? The total collections are the sum of the percentage of each check amount received times the total checks received times the amount of the check, so Total collections = .60(5,100)($41) + .40(5,100)($73) =$274380 The weighted average delay is the sum of the days to clear a check, times the amount of the check divided by the average daily receipts, so: Weighted average delay = 2[.60(5,100)($41)/$274380] + 3[.40(5,100)($73)/$274380] =2.54 days The average daily float is the weighted average delay times the average checks received per day Assuming a 30 day month, we get Average daily float = 2.54($274380/30 days) 23230.84 $ C The most the firm should pay is the total amount of the average float, or $23230.84 D The average daily interest rate is 1.07 = (1 + R) 365 R = .01854% per da days The daily cost of float is the average daily float times the daily interest rate, Daily cost of the float = $23230.84(.0001854) Daily costof Float = $4.307 E The most the firm should pay is still the average daily float. New average daily float = 1.5($274380/30) $13,719

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