Reference no: EM132623247

Cyberpunk Co., a Polish video game developer, publisher and distributor based in Warsaw, was founded in May 1994 by Marcin Iwinski and Michal Kicinski. The company is very famous among gamers, and is regarded as one of the best in the industry, mostly because of their critically acclaimed game series "The Witcher". In addition to game development, a video game distribution service, GOG.com was established  by Cyberpunk to help players find old games. Its mission is to offer games free of digital rights management (DRM) to players and its service was expanded to cover new top tier games made by the best in the industry and some independent games from the old era of gaming.

By selling games, the company generates a half-monthly revenue of about $2100, which is deposited directly to a current account(pays no interest) at a nearby bank. For meeting day to day cash needs, $1200 is always kept aside in that current account. Whenever the current account balance is above $1200, Cyberpunk transfers the excess amount to a separate savings account that pays half-yearly interest of 1%. Cyberpunk currently has $15,000 in the savings account, and presently the company usually transfers about $500 from the sales proceedings to the savings account each month. The company never delays on the payment of any kind of financial obligations or bills, and such bills are usually around $2,850 per month.

Marcin Iwinski and Michal Kicinski are wondering if they should, instead of keeping all the excess cash in the savings account, start investing in short-term fixed deposits offered by local banks which pay an annual interest of 4.75%. As the company did not have any financial specialist, they came to you for your advice on what to do.

You start by analyzing the company's cash collection and disbursement trends, and realize that the although the company usually has 30 days to pay any dues after occurrence, the company pays all its outstanding dues 9 days earlier till the last payment date.

You now have a better understanding of the situation, and know that you have look at various options of earning interests by managing/modifying the company's cash inflows, outflows and interest earning tools.

Requirements (Show calculations where necessary)

a) What is your advice on managing the balances on both the current and savings account and why? That is, where Cyberpunk should keep/invest its cash and why?

b) What should Cyberpunk do if there are excess amount of cash on the current account? Why?