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

The right solution is "$245,917.81".

Step-by-step explanation:

According to the question,

Interest,

= 9.35%

Sales,

= 320000000

Float reduction,

= 3

Now,

Saving in interest will be:

=
`Sales* Interest* (Float \ reduction)/(365)`

By substituting the values, we get

=
`320000000* 9.35 \ percent* (3)/(365)`

=
`245,917.81` ($)