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Each business day, on average, a company writes checks totaling $40,500 to pay its suppliers
Each business day, on average, a company writes checks totaling $40,500 to pay its suppliers. The usual clearing time for the checks is five days. Meanwhile, the company is receiving payments from its customers each day, in the form of checks, totaling $51,500. The cash from the payments is available to the firm after three days.
a. Calculate the company's disbursement float, collection float, and net float.(round answer to the nearest whole number)
b. Calculate the company's disbursement float, collection float, and net float it the collected funds were available in one day instead of three. (round answer to whole number)
Expert Solution
a). Computation of the disbursement float:-
Disbursement float = Average monthly checks written * Average no of days to clear the checks
= $40,500 * 5
= $202,500
Computation of the collection float:-
Collection float = Average monthly checks received * Average number of days to clear the checks
= -$51,500 * 3
= -$154,500
Computation of the net float:-
Net float = Disbursement float + Collection float
= $202,500 - $154,500
= $48,000
b). Computation of the disbursement float:-
Disbursement float = Average monthly checks written * Average no of days to clear the checks
= $40,500 * 5
= $202,500
Computation of the collection float:-
Collection float = Average monthly checks received * Average number of days to clear the checks
= -$51,500 * 1
= -$51,500
Computation of the net float:-
Net float = Disbursement float + Collection float
= $202,500 - $51,500
= $151,000
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