FUND. OF CORPORATE FINANCE (LL)
11th Edition
ISBN: 9781260377811
Author: Ross
Publisher: MCG
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Chapter 19, Problem 1QP
Summary Introduction
To calculate: The average daily float.
Introduction:
The float is the difference between the bank cash and the book cash denoting the net effects of checks in the clearing process.
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On an average day, GDF Corp. receives $7,218 in checks from customers. These checks clear the bank in an average of 1.6 days. The applicable daily interest rate is .028 percent. What is the present value of eliminating the float? Assume each month has 30 days.
The average weekly check collection is P300,000 while the average weekly check disbursement is P140,000.
1. If the float of the collections and disbursements are 5 days and 4 days respectively, how much is the net float? Answer in absolute amounts.
2. Favorable or Unfavorable?
10. Comparing Costs of Checking Accounts. What would be the net annual cost of the
following checking accounts?
a. Monthly fee, $3.75; processing fee, $0.25 per check; checks written, an
average of 22 a month.
b. Interest earnings of 6 percent with a $500 minimum balance; average
monthly balance, $600; monthly service charge of $15 for falling below the
minimum balance, which occurs three times a year (no interest earned in
these months).
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Chapter 19 Solutions
FUND. OF CORPORATE FINANCE (LL)
Ch. 19.1 - What is the transaction motive, and how does it...Ch. 19.1 - What is the cost to the firm of holding excess...Ch. 19.2 - Which would a firm be most interested in reducing,...Ch. 19.2 - Prob. 19.2BCQCh. 19.2 - Prob. 19.2CCQCh. 19.3 - Prob. 19.3ACQCh. 19.3 - Prob. 19.3BCQCh. 19.4 - Prob. 19.4ACQCh. 19.4 - What is a zero-balance account? What is the...Ch. 19.5 - What are some reasons why firms find themselves...
Ch. 19.5 - Prob. 19.5BCQCh. 19.5 - Why are money market preferred stocks an...Ch. 19.A - Prob. 1ACQCh. 19.A - Prob. 2BCQCh. 19.A - Describe how the MillerOrr model works.Ch. 19.A - Changes in Target Cash Balances Indicate the...Ch. 19.A - Using the BAT Model Given the following...Ch. 19.A - Prob. 3QPCh. 19.A - Prob. 4QPCh. 19.A - Determining Optimal Cash Balances The All Day...Ch. 19.A - Prob. 6QPCh. 19.A - Prob. 7QPCh. 19.A - Interpreting MillerOrr Based on the MillerOrr...Ch. 19.A - Prob. 9QPCh. 19.A - Using BAT Rise Against Corporation has determined...Ch. 19 - Prob. 19.1CTFCh. 19 - Prob. 19.2CTFCh. 19 - Prob. 19.3CTFCh. 19 - Prob. 1CRCTCh. 19 - Prob. 2CRCTCh. 19 - Prob. 3CRCTCh. 19 - Prob. 4CRCTCh. 19 - Prob. 5CRCTCh. 19 - Prob. 6CRCTCh. 19 - Collection and Disbursement Floats [LO1] Which...Ch. 19 - Prob. 8CRCTCh. 19 - Prob. 9CRCTCh. 19 - Prob. 10CRCTCh. 19 - Prob. 11CRCTCh. 19 - Prob. 12CRCTCh. 19 - Prob. 13CRCTCh. 19 - Prob. 1QPCh. 19 - Calculating Net Float [LO1] Each business day, on...Ch. 19 - Prob. 3QPCh. 19 - Float and Weighted Average Delay [LO1] Your...Ch. 19 - NPV and Collection Time [LO2] Your firm has an...Ch. 19 - Using Weighted Average Delay [LO1] A mail-order...Ch. 19 - Prob. 7QPCh. 19 - Lockboxes and Collections [LO2] It takes Cookie...Ch. 19 - Prob. 9QPCh. 19 - Prob. 10QPCh. 19 - Prob. 11QPCh. 19 - Calculating Transactions Required [LO2] Cow Chips,...Ch. 19 - Prob. 1MCh. 19 - Prob. 2MCh. 19 - Prob. 3M
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- (D) Receivables and Cash: Collection Float A firm has daily cash receipts through checks. On average 150 checks are received per day while each check has an average value of P2,500. It takes an average of 3 days for the bank to clear the checks. A bank has offered to decrease the clearing period to one day for a monthly fee of P500. The bank gives an interest rate of 3% per year. Required: 16. How much is the daily cash receipts? 1. How much is the decrease of the clearing float in days? 2. How much would the average cash in bank balance increase by if the ABC took the bank's offer? 3. How much would ABC receive as total annual interest on the freed cash? 4. How much is the annual cost of the service? 21. What is the annual net benefit or loss) from having this service?arrow_forwardHome Roasted Turkeys disburses checks every four weeks that average $70,000 and take five days to clear. How much interest can the company earn annually if it delays transfer of funds from an interest-bearing account that pays .02 percent per day for these five days? Ignore the effects of compound interest. Assume one year has exactly 52 weeks. $36 $91 $182 $364 $910arrow_forwardAverage trade collections and disbursement are P72,000,000 and P57,600,000 per year. It takes a customer check an average of three days to clear the bank while it takes a company check four days. If the bank provides a 2% return on the bank balance, how much is the net benefit or (cost) of the float?arrow_forward
- QUESTION 15 Styella Dealers Ltd. writes out a check averaging R8 500 per day, and it takes seven days for these checks to clear. The firm also receives checks in the amount of R2 000 per day, but the firm loses 3 days while its receipts are being deposited and cleared. What is the firm’s net float in rand terms? R19 500 R40 000 R53 500 R59 500arrow_forwardMRK corporation has a DSO of 35 days. The company's annual credit sales are $10 million. What is the level of its accounts receivable? Assume there are 365 days in a year.? Group of answer choices $350 million $958, 904 $400 million $1,369, 863arrow_forward10. Marca Leon is planning to change its credit policy. The proposed change is expected to shorten the collection period from 50 days to 30 days, increase the ratio of cash sales to total sales from 20% to 30%, and decrease total sales by 10%. 10 If projected sales for the coming year is P40,000,000, what is the difference on the average accounts receivable between the current and the proposed change in credit policy? Assume 360 days in a year. a. P2,344,444 b. P2,604,939 c. P4,938,272 d. cannot be determinedarrow_forward
- Your neighbor goes to the post office once a month and picks up two checks, one for $25,000 and one for $5,000. The larger check takes six days to clear after it is deposited; the smaller one takes three days What is the average daily float? (We assume 1 month has 30 days) $5500 $1000 $5000 $4500arrow_forwardSuppose a company borrowed $1 million at a rate of 9% simple interest, with interestpaid at the end of each month. The bank uses a 360-day year. How much interestwould the firm have to pay in a 30-day month? What would the interest be if thebank used a 365-day year? [(0.09/360) (30) ($1,000,000) 5 $7,500 interest for themonth. For the 365-day year, (0.09/365)(30)($1,000,000) 5 $7,397.26 of interest.The use of a 360-day year raises the interest cost by $102.74, which is whybanks like to use it on loans.]arrow_forwardCalculating the Average Collection Period [LO2] Ortiz Lumber Yard has acurrent accounts receivable balance of $431,287. Credit sales for the year justended were $3,943,709. What is the receivables turnover? The days’ sales inreceivables? How long did it take on average for credit customers to pay off theiraccounts during the past year?arrow_forward
- Freedom Wine receives an average of $684,006 in checks per day. The delay in clearing is typically 1.3 days. The current interest rate is .024 percent per day. Assume each month has 30 days. What is the highest daily fee the company should be willing to pay to eliminate its float entirely?arrow_forwardProblem 12 (DSO and Accounts Receivable) James Inc. currently has P750,000 in accounts receivable, and its day sales outstanding (DSO) is 55 days. It wants to reduce its DSO to 35 days by pressuring more of its customers to pay their bills on time. If this policy is adopted, the company's average sales will fall by 15%. What will be the level of accounts receivable following the change? Assume a 365-day year.arrow_forwardReceivables Investment Medwig Corporation has a DSO of 17 days. The company averages $7,750 in sales each day (all customers take credit). What is the company's average accounts receivable? Assume a 365-day year. Round your answer to the nearest dollar.arrow_forward
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