Simon Corporation has daily cash receipts of $65,000. A recent analysis of its
collections indicated that customers’ payments were in the mail an average of 2.0
days. Once received, the payments are processed in 2.0 days. After payments are deposited,
it takes an average of 2.5 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 opportunity cost is 9%, would it be economically advisable for the
firm to pay an annual fee of $16,500 to reduce collection float by 3 days? Explain
why or why not.
