Reference no: EM131293775

Norma's Cat Food-

Solve the following problem. Norma's Cat Food of Shell Knob ships cat food throughout the country. Norma has determined that through the establishment of local collection centers around the country, she can speed up the collection of payments by two and one-half days. Furthermore, the cash management department of her bank has indicated to her that she can defer her payments on her accounts by one-half day without affecting suppliers. The bank has a remote disbursement center in Iowa.

1. If the company has $5 million per day in collections and $3 million per day in disbursements, how many dollars will the cash management system free up? Justify your answers.

2. If the company can earn 8 percent per annum on freed-up funds, how much will the income be? Justify your answers.

3. If the annual cost of the new system is $800,000, should it be implemented? Explain why or why not.

What I want to see is the questions typed in and your calculations. If you set up your paper similar to the below that would be fine. You could type in a brief introduction, then type in each question with your answer shown below. Summarize with the final question answered, question c. Remember to highlight your FINAL answer for a and b.

An employee has determined that through the establishment of local collection centers around the country, she can speed up the collection of payments by two and one-half days. Furthermore, the cash management department of her bank has indicated to her that she can defer her payments on her accounts by one-half day without affecting suppliers. The bank has a remote disbursement center in Iowa. The highlighted is important information. See how similar information is used in the problem below.

If the company has $5 million per day in collections and $3 million per day in disbursements, how many dollars will the cash management system free up?

If the company can earn 8 percent per annum on freed-up funds, how much will the income be?

If the annual cost of the new system is $800,000, should it be implemented?

Here is an example:

City Farm Insurance has collection centers across the country to speed up collections. The company also makes its disbursements from remote disbursement centers the Collection time has been reduced by two days and disbursement time increased by one day because of these policies. Excess funds are being invested in short-term instruments yielding 12 percent per annum.

a. If City Farm has $5 million per day in collections and $3 million per day in disbursements, how many dollars has the cash management system freed up?

b. How much can City Farm earn in dollars per year on short-term investments made possible by the freed-up cash?

City Farm Insurance

a. X daily collections × X0 days speed up = $X,000,000 additional collections
$X,000,000 daily disbursements × X.0 days slow down =
$ X,000,000 delayed disbursements$XX,000,000 freed-up funds

b. x (freed up funds) times interest rate = interest on freed up funds.