Top Notch Tools has average daily receipts of $3,600.These receipts are available after 1.5 days on average.What is the NPV of eliminating the float if the cost to do so is $1,500?

Question

Quizplus · Accepted Answer

The NPV of eliminating the float can be calculated by finding the annual benefit of eliminating the float and then subtracting the cost. The annual benefit is found by multiplying the average daily receipts by the number of days in a year (365) and then by the average float time (1.5 days). This gives us the annual benefit of eliminating the float: $3,600 * 365 * 1.5 = $1,971,000. Assuming a reasonable interest rate (not given in the question, but necessary for NPV calculation), the annual benefit would be significantly higher than the cost of $1,500 to eliminate the float. However, without specifying the interest rate, we can't calculate the exact NPV. The correct answer choice must be inferred based on the information given. Since none of the provided choices match a direct calculation and considering the cost of $1,500, the closest and most reasonable choice given the high annual benefit would be $3,900, assuming it accounts for the net benefit after the cost to eliminate the float.

Top Notch Tools Has Average Daily Receipts of $3,600