Question 15 Clearwater Glass Company recently examined its cash management polic

Question

Question 15 Clearwater Glass Company recently examined its cash management policy. It found that it takes an average of five days for cheques that the compan to be deducted from its chequing account balance. On the other hand, an average of four days elapses from the time Clearwater Glass receives payments from its customers until the funds are available for use at its bank. On an average day, Clearwater Glass writes c total $70 000, and it receives cheques from customers that total $80 000. y writes to reach its bank and thus heques that Compute the disbursement float, collection float, and net float in dollars. a (5 marks) If Clearwater Glass has an opportunity cost equal to 10%, how much would it be willing 15 marks) to spend each year to reduce collection delay (float) by two days?

Explanation / Answer

.a. Disbursement Float=$70,000*5days=$350,000

Collection Float=$80,000*4 days=$320,000

Net Float=Disbursement Float-Collection Float=$350,000=$320,000=$30,000

.b If the collection delay is reduced by 2 days:

Amount of cheques received in a year(assuming 365 days)=$80,000*365= $ 29,200,000

Opportunity cost=10%=0.1

Opportunity cost at 10%= 2 days interest of $   29,200,000

Annual Opportunity cost at 10%=29200000*(0.1/365)*2=$16,000

Maximum amount it will be willing to spend=$16,000

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