Question

Purple Feet Wine, Inc., receives an average of $20,000 in checks per day. The delay in clearing is typically three days. The current interest rate is .017 percent per day..(a) What is the company's float?(b) What is the most Purple Feet should be willing to pay today to eliminate its float entirely?

Answer 1

Answer and Explanation:

Given:

Average amount of checks per day = $20,000

Delay days = 3 days

Interest rate = 0.017% = 0.00017

(A) Company's float = Average amount of checks per day × Delay days

Company's float = $20,000 × 3 days

Company's float = $60,000

(B) Most Purple Feet should be willing to pay today to eliminate its float entirely = Company's float × Interest rate

Most Purple Feet should be willing to pay today to eliminate its float entirely = $60,000 × 0.00017

Most Purple Feet should be willing to pay today to eliminate its float entirely = 10.2