In: Finance
City Farm Insurance has collection centers across the country to
speed up collections. The company also makes its disbursements from
remote disbursement centers so the firm's checks will take longer
to clear the bank. Collection time has been reduced by three and
one-half days and disbursement time increased by two days because
of these policies. Excess funds are being invested in short-term
instruments yielding 4 percent per
annum.
a. If City Farm has $4.55 million per day in
collections and $3.55 million per day in disbursements, how many
dollars has the cash management system freed up? (Enter
your answer in dollars not in millions (e.g., $1,234,567).)
Freed-up funds=
b. How much can City Farm earn in dollars per year
on short-term investments made possible by the freed-up cash?
(Enter your answer in dollars not in millions (e.g.,
$1,234,567).)
Interest on freed-up cash=