Float. General Products writes checks that average $20 000 daily. These checks take an av- erage of

QUESTION

Float. General Products writes checks that average $20,000 daily. These checks take an av- erage of 6 days to clear. It receives payments that average $22,000 daily. It takes 3 days be- fore these checks are available to the firm. a. Calculate payment float, availability float, and net float. b. What would be General Productss annual savings if it could reduce availability float to 2 days? The interest rate is 6 percent per year. What would be the present value of these savings?
a. Availability float=$22,000*3 = $66,000 Payment float=6+3=9 days = 9*22000=$198000 Net float=198000-66000=$132,000 b. If the availability is reduced to 2 days then the

terest could be earned on $22,000 Interest rate=6% =0.06*22000=1,320 Present value of savings=1320/(1.06)=1,245.28

ANSWER:

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