Assume that each day company writes and receives checks totaling $10,000. If it takes 5 days for the checks to clear and be deducted from the company’s account, and only 4 days for the deposits to clear, what is the float?

Daily disbursement float = $10,000 × 5 days = $50,000. Daily collection (deposit) float = $10,000 × 4 days = $40,000. Net (or “overall”) float = Disbursement float – Collection float = $50,000 – $40,000 = $10,000. A positive amount means the firm’s ledger (book) balance is $10,000 lower than the bank-collected balance; thus the firm enjoys $10,000 of usable funds in transit.

B. Float is positive $10,000, not zero; timing differences exist.
C. Negative float would occur only if collection float exceeded disbursement float.
D. $50,000 is the gross disbursement float, not the net float.

1. Ross

Westerfield & Jordan

Fundamentals of Corporate Finance

12th ed.

Ch. 26 “Cash and Liquidity Management

” Example 26.1

pp. 807-808.

2. Brigham & Ehrhardt

Financial Management: Theory & Practice

16th ed.

Section “Managing Float

” pp. 628-629.

3. MIT OpenCourseWare 15.433 “Corporate Financial Engineering

” Lecture notes 4

slide 13 (“Net float = disbursement float – collection float”).