Salman Corporation has daily cash receipts of US$65,000. A recent analysis of its collections indicated that customers'

Question:

Salman has daily cash receipts of US$65,000. A recent analysis of its collections indicated that customers' payments were in the mail an average of 2.5 days. Once received, the payments are processed in 1.5 days. After payments are deposited, it takes an average of 3 days for these receipts to clear the banking system.
a. How much collection float (in days) does the firm currently have?
b. If the firm's is 11 percent, would it be economically advisable for the firm to pay an annual fee of US$16,500 to reduce collection float by 3 days? Explain why or why not.
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