Float Simon Corporation has daily cash receipts of $65,000. A recent analysis of its collections indicated that

Question:

Float Simon Corporation has daily cash receipts of $65,000. A recent analysis of its collections indicated that customers’ payments were in the mail an average of 3.0 days. Once received, the payments are processed in 2.0 days. After payments are deposited, it takes an average of 2.5 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 9%, would it be economically advisable for the firm to pay an annual fee of $16,500 to reduce collection float by 2 days? Explain why or why not.
c. What would the company’s opportunity cost have to be to make the $16,500 fee worthwhile?

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Opportunity Cost
Opportunity cost is the profit lost when one alternative is selected over another. The Opportunity Cost refers to the expected returns from the second best alternative use of resources that are foregone due to the scarcity of resources such as land,...

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