If average daily remittances are $6 million, and "extended disbursement float" adds 2 days to the disbursement schedule, how much should the firm be willing to pay for a cash management system if the firm earns 7% on excess funds.
A) $500,000
B) $1,500,000
C) $0
D) $840,000

Question

Quizplus · Accepted Answer

The firm can earn interest on the $12 million ($6 million x 2 days) that is freed up by reducing the float. The annual interest on $12 million at 7% is $840,000.

If Average Daily Remittances Are $6 Million, and "Extended Disbursement