Slimware is considering establishing a zero-balance system for its payroll account.Currently, the firm pays its hourly employees every week on late Friday afternoon and puts a check for $750,000 in the bank to cover the payroll each Monday morning.Slimware has determined that the checks clear its bank as follows:
$$\begin{array} { l c }
\text { Day } & \text { Percent clearing } \
\hline \text { Manday } & 26 \% \
\text { Tuesday } & 51 \% \
\text { Wednesday } & 14 \% \
\text { Thursday } & 7 \% \
\text { Friday } & 2 \%
\end{array}$$
What is the annual pretax return to Slimware if the firm can earn 9% on any funds released from employing the zero-balance system? Assume the company has 52 weekly pay periods each year.

Question

Slimware is considering establishing a zero-balance system for its payroll account.Currently, the firm pays its hourly employees every week on late Friday afternoon and puts a check for $750,000 in the bank to cover the payroll each Monday morning.Slimware has determined that the checks clear its bank as follows:
$$\begin{array} { l c } 
\text { Day } & \text { Percent clearing } \
\hline \text { Manday } & 26 \% \
\text { Tuesday } & 51 \% \
\text { Wednesday } & 14 \% \
\text { Thursday } & 7 \% \
\text { Friday } & 2 \%
\end{array}$$
What is the annual pretax return to Slimware if the firm can earn 9% on any funds released from employing the zero-balance system? Assume the company has 52 weekly pay periods each year.

Quizplus · Accepted Answer

The annual pretax return to Slimware is $10,374. This is calculated as follows:- The average daily balance in the payroll account is $750,000 * (1 - 0.26) = $555,000.- The annual pretax return is $555,000 * 0.09 = $10,374.

Slimware Is Considering Establishing a Zero-Balance System for Its Payroll