The Timberline firm expects a total cash need of $12,500 over the next 3 months. They have a beginning cash balance of $1,500, 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.
-What is the firm's collection float?

Question

Quizplus · Accepted Answer

The collection float is the difference between the total cash need and the beginning cash balance. In this case, the total cash need is $12,500 and the beginning cash balance is $1,500, so the collection float is $12,500 - $1,500 = $11,000. However, the question asks for the negative of the collection float, so the answer is -$11,000, which is choice A.

The Timberline Firm Expects a Total Cash Need of $12,500