Firm be willing to pay to reduce the weighted average float

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A mail-order firm processes 4,300 checks per month. Of these, 60 percent are for $33 and 40 percent are for $65. The $33 checks are delayed two days on average; the $65 checks are delayed three days on average. Assume 30 days in a month.

e. How much should the firm be willing to pay to reduce the weighted average float to 1.5 days?

It takes Cookie Cutter Modular Homes, Inc., about six days to receive and deposit checks from customers. Cookie Cutter’s management is considering a lockbox system to reduce the firm’s collection times. It is expected that the lockbox system will reduce receipt and deposit times to three days total. Average daily collections are $132,000, and the required rate of return is 4 percent per year. Assume 365 days per year.

c-2 What is the maximum monthly charge Cookie Cutter should pay for this lockbox system if the payment is due at the beginning of the month?

Reference no: EM131333641

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