Beth’s Society Clothiers, Inc

 

Beth’s Society Clothiers, Inc., has collection centers across the country to speed up
collections. The company also makes payments from remote disbursement centers so the
firm’s checks will take longer to clear the bank. Collection time has been reduced by
two and one-half days and disbursement time increased by one and one-half days
because of these policies. Excess funds are being invested in short-term instruments
yielding 6 percent per annum.

 

a. If the firm has $4 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 the firm earn in dollars per year on short-term investments made
possible by the freed-up cash?