Solved- Clearwater Glass Company examined its cash management policy and found that it takes an average of 5 days for checks that the company writes

Question

Clearwater Glass Company examined its cash management policy and found that it takes an average of 5 days for checks that the company writes to reach its bank and thus to be deducted from its checking account balance (that is, disbursement delay or float, is 5 days). On the other hand, an average of 4 days elapses from the time Clearwater Glass receives payments from its customers until the funds are available for use at its bank (i,e, collection delay, or float, is 4 days). On an average day, Clearwater Glass writes checks that total $70,000, and it receives checks from customers that total $80,000.

(a) Compute the disbursement float, collection float, and net float in dollars.

(b) If Clearwater Glass has an opportunity cost equal to 10 percent, how much would it be willing to spend each year to reduce collection delay (float) by two days?

Answer

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