Question

MLX has annual sales of $320 million per year and has calculated the collection float to be 12 days. If MLX is currently paying 9.35% on its line of credit, what amount of interest expense could be saved if the collection float is reduced by 3 days? (Assume 365 days per year.

Answer 1

Answer: $245918

Step-by-step explanation:

Following the information given in the question, the amount of interest expense that could be saved if the collection float is reduced by 3 days will be calculated thus:

= Sales × Interest × Sales reduction/365

= $320 million × 9.35% × 3/365

= $245918

Therefore, the interest expense that can be saved is $245918.