Problem: A mail order firm processes 5,000 checks per month. Of these, 65 percent are for $50 and 35 percent are for $70. The $50 checks are delayed two days on average; the $70 checks are delayed three days on average.
Q1. What is the average daily collection float? How do you interpret your answer?
Q2. What isthe weighted average delay? Use the result to calculate the average daily float.
Q3. How much should the firm be willing to pay to eliminate the float?
Q4. If the interest rate is 7 percent, calculate the daily cost of the float.
Q5. How much should the firm be willing to pay to reduce the weighted average float by 1.5 days?