A mail-order firm processes 50,000 cheques per month. Of these, 34 per cent are for €20 and 66 per cent are for €30. The €20 cheques are delayed 2 days on average; the €30 cheques are delayed 3 days on average. Assume 30 days in a month, on an average.

(a) What is the average daily collection float? How do you interpret your answer?

(b) What is the weighted average delay? Use the result to calculate the average daily float.

(c) How much should the firm be willing to pay to eliminate the float?

(d) If the interest rate is 3 per cent per year, calculate the daily cost of the float.

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