Concept explainers
Float and Weighted Average Delay [LO1] Your neighbor goes to the post office once a month and picks up two checks, one for $13,000 and one for $4,500. The larger check takes four days to clear after it is deposited; the smaller one takes three days. Assume 30 days in a month.
a. What is the total float for the month?
b. What is the average daily float?
c. What are the average daily receipts and weighted average delay?
a)
To calculate: The overall float for a month.
Introduction:
The float is the difference between the bank cash and the book cash denoting the net effects of checks during the clearing process.
Answer to Problem 4QP
The total float is $65,500.
Explanation of Solution
Given information:
Once in a month, Person X’s neighbor collects two checks; one check for $13,000 and another check for $4,500. The clearing days of the check after it is deposited is 4 days, and 3 days for the larger check and smaller check respectively.
Formula to calculate the overall float:
Calculate the collection float:
Hence, the total float is $65,500.
b)
To calculate: The average float daily.
Introduction:
The float is the difference between the bank cash and the book cash denoting the net effects of checks during the clearing process.
Answer to Problem 4QP
The average daily float is $2,183.33.
Explanation of Solution
Given information:
Once in a month, Person X’s neighbor collects two checks; one check for $13,000 and another check for $4,500. The clearing days of the check after it is deposited is 4 days, and 3 days for the larger check and smaller check respectively.
Formula to calculate the average daily float:
Calculate the average daily float:
Hence, the average daily float is $2,183.33.
c)
To calculate: The average daily receipts and weighted average delay.
Introduction:
The float is the difference between the bank cash and the book cash denoting the net effects of checks during the clearing process.
Answer to Problem 4QP
The average daily receipts is $583.33 and the weighted average delay is 3.74 days.
Explanation of Solution
Given information:
Once in a month, Person X’s neighbor collects two checks; one check for $13,000 and another check for $4,500. The clearing days of the check after it is deposited is 4 days, and 3 days for the larger check and smaller check respectively.
Formula to compute the average daily charge:
Compute the average daily charge:
Hence, the average daily charge is $583.33.
Formula to compute the weighted average delay:
Compute the weighted average delay:
Hence, the weighted average delay is 3.74 days.
Want to see more full solutions like this?
Chapter 19 Solutions
Loose-leaf Fundamentals of Corporate Finance with Connect Access Card
- Calculating Flotation Costs [LO4] Suppose your company needs $24 million to build a new assembly line. Your target debt-equity ratio is .75. The flotation cost for new equity is 7 percent, but the flotation cost for debt is only 3 percent. Your boss has decided to fund the project by borrowing money because the flotation costs are lower and the needed funds are relatively small.a. What do you think about the rationale behind borrowing the entire amount?b. What is your company’s weighted average flotation cost, assuming all equity is raised externally?arrow_forwardMf2. 200) Consider a strip mall in Jackson Heights, Queens that recently sold for a cap rate of 7.47%. It's NOI in the following year is $350,000 and is expected to grow at an annual rate of 2%. What is the implied IRR on this investment for the owners of the mall according to the Gordon Growth Dividend Discount model? Write your answer in percent, but do not include the % signarrow_forward1. How much is the average daily collections? Format: 111,111 2. How much is the increase in the average cash balance due to the three-day reduction in the collection float if the new system is adopted? Format: 1,111,111 3. How much is the gross benefit (annual return on the investment of increase in the average cash balance) of the lockbox system? Format: 11,111 4. Should the company make the investment and adopt the lockbox system? Yes or Noarrow_forward
- M2 Manitowoc Crane (A). Manitowoc Crane (U.S.) exports heavy crane equipment to several Chinese dock facilities. Sales are currently 12,000 units per year at the yuan equivalent of $24,000 each. The Chinese yuan (renminbi) has been trading at Yuan7.60/$, but a Hong Kong advisory service predicts the renminbi will drop in value next week to Yuan8.50/$, after which it will remain unchanged for at least a decade. Accepting this forecast as given, Manitowoc Crane faces a pricing decision in the face of the impending devaluation. It may either (1) maintain the same yuan price and in effect sell for fewer dollars, in which case Chinese volume will not change; or (2) maintain the same dollar price, raise the yuan price in China to offset the devaluation, and experience a 10% drop in unit volume. Direct costs are 75% of the U.S. sales price. a. What would be the short-run (one-year) impact of each pricing strategy? b. Which do you recommend? a. If Manitowoc Crane maintains the same yuan…arrow_forwardSuppose it takes 1.3037 U.S. dollars today to purchase one British pound in the foreign exchange market, and currency forecasters predict that the U.S. dollar will depreciate by 15% against the pound over the next 30 days. How many dollars will a pound buy in 30 days?arrow_forwardHedging using forward rates: Assume the hypothetical spot rate between the JPY and USD was 101.25 JPY per USD. Suppose you are purchasing 2000000 JPY worth of microprocessors deliverable (product and payment) in 3 months with the contract set up between you and your supplier on Friday. How much is that shipment worth in USD. Assume that you want to hedge against exchange rate risk, and go to the bank. The financial specialist at the bank gives you the official 3 month forward rate at 101.18 JPY per USD. What does that imply for your payment to the bank in 3 months?arrow_forward
- Don't use chatgpt, I will 5 upvotes Accounts receivable changes with bad debts A firm is evaluating an accounts receivable change that would increase bad debts from 2% to 3% of sales. Sales are currently 50,000 units per month, the selling price is $20 per unit, and the variable cost per unit is $15. As a result of the proposed change, sales are forecast to increase to 80,000 units per month. If the cost of capital is 0.75% per month, should the firm change its credit policy? The cost of the marginal bad debts of the firm is $28000. (Round to the nearest dollar.) The profit contribution from an increase in sales is $___. (Round to the nearest dollar.)arrow_forwardFast pls solve this question correctly in 5 min pls I will give u like for sure Surbh Poutine Cheez Company has yearly sales of $410,000 and an average collection period of 30 days. A factoring company is offering a 30-day receivables loan equal to 84% of the accounts receivable at 6.5% along with a commission fee of 0.75% of the receivables. The firm estimates that by taking the offer, it could save $150 in collection costs and 0.5% in bad debt costs, as a percentage of sales. What is the annual savings (in $ terms) of the arrangement to Poutine Cheez?arrow_forwardFast pls solve this question correctly in 5 min pls I will give u like for sure Surbh Suppose 6-month Treasury bills are trading at a YTM of 1.9%, 12-month T-bills are trading at a YTM of 3%. If 18-month Treasury notes with a coupon rate of 5% are trading at par ($100), then what is the 18-month spot rate? Assume semi-annual compounding. Round your answer to 4 decimal places. For example if your answer is 3.205%, then please write down 0.0321. On excel preferablyarrow_forward
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT