The daily cash inflows of a company amount to $ 65,000.00. A recent analysis of their collections revealed that it took 21/2 days for customer payments to arrive by mail. Once received, the company required 11/2 days to process them, and three days after they were deposited they appeared in the bank balances. a) What is the delay (in days) that the company normally experiences in the collection of its accounts? b) If the opportunity cost of the company is 11%, is it advisable for the company to pay an annual fee of $ 16,500.00 in order to reduce the delay in the collection of accounts by 3 days? Explain your answer.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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The daily cash inflows of a company amount to $
65,000.00. A recent analysis of their collections
revealed that it took 21/2 days for customer payments
to arrive by mail. Once received, the company required
1'/2 days to process them, and three days after they
were deposited they appeared in the bank balances.
a) What is the delay (in days) that the company
normally experiences in the collection of its accounts?
b) If the opportunity cost of the company is 11%, is it
advisable for the company to pay an annual fee of $
16,500.00 in order to reduce the delay in the collection
of accounts by 3 days? Explain your answer.
Transcribed Image Text:The daily cash inflows of a company amount to $ 65,000.00. A recent analysis of their collections revealed that it took 21/2 days for customer payments to arrive by mail. Once received, the company required 1'/2 days to process them, and three days after they were deposited they appeared in the bank balances. a) What is the delay (in days) that the company normally experiences in the collection of its accounts? b) If the opportunity cost of the company is 11%, is it advisable for the company to pay an annual fee of $ 16,500.00 in order to reduce the delay in the collection of accounts by 3 days? Explain your answer.
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