A mail-order firm processes 5,000 checks per month. Of these, 65% are for $50 and 35% are for $70. The $50 checks are delayed two days on average; the $70 checks are delayed three days on average.
a. What is the average daily collection float? How do you interpret your answer?
b. What is the weighted average delay? use the results to calculate the average daily float.
c. How much should the firm be willing to pay to eliminate the float.
d. If the interest rate is 7% per year, calculate the daily cost of the float.
e. How much should the firm be willing to pay to reduce the weighted average float by 1.5 days?
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