DEF, Inc has determined that it has three basic batch of collections with the following associated collection float:
Batch Average Collections Days of float
#1 (Local) $10,000,000 2
#2 (Regional) $5,000,000 4
#3 (Distant) $25,000,000 6
Determine the average daily float for the above collections for a typical month.
Using the information from the above problem, assume that if DEF changed to a lockbox. Changing to the lockbox would have no effect on the local collections (Batch 1), but would reduce the regional float (Batch 2) by 1 day, and the Distant Float (Batch 3) by 2 days. If the cost of capital is 7%, what is the value of the float reduction?