The BM firm expects a total need of $12,500 over the next 3 months. They have a beginning cash balance of $1500, and cash is replenished when it hits zero. The fixed cost of selling securities to replenish cash balances is $3.50. The interest rate on marketable securities is 8% per annum. There is a constant rate of cash disbursement and no cash receipts during the month. On an average day, a company writes checks totaling $1,500. These checks take 7 days to clear. The company receives checks totaling $1,800. These checks take 4 days to clear. The cost of debt is 9%. What is the firm's disbursement float?

Question

Quizplus · Accepted Answer

Disbursement float is calculated as the average daily disbursement multiplied by the number of days it takes for disbursements (checks written by the company) to clear. In this case, the company writes checks totaling $1,500 each day, and these checks take 7 days to clear. Therefore, the disbursement float is $1,500 * 7 = $10,500.

The BM Firm Expects a Total Need of $12,500 Over