Reference no: EM132735535

Question 1 - Cash management strategies - Collection agency. ABC Company has an average monthly cash receipt in the amount of Php3,300,000. It has an average collection period of 20 days. A collection agency has offered to be the company's collector and shorten collection period by 5 days for a monthly fee of Php3,500. The company can invest its excess funds in money market placement at a rate of 10%.

Determine the net annual benefit if the collection agent's offer is accepted.

Question 2 - Cash management strategies - Lockbox system. ABC Company has a number of customers in the province who usually pay on time but because of the mailing time, processing time and clearing time, cash cannot be obtained as payment is made.

A bank has offered to provide the company with a lockbox system at a fixed fee of Php800 per month and a variable fee of Php6 for each payment processed by the bank.

The Company believes it would benefit from this system since it receives an average of 80 payments a day, each averaging Php5,000. With the lockbox system, the company's collection float will decrease by 8 days. Money market securities earn 6% per year.

Determine the net annual benefit if the lockbox system is used.