The Buher Company owns four hotels in a midwestern state. In the past, each hotel had its own separate payroll account. John Buher, the owner and managing partner, has decided to prepare payroll at the corporate office in Chicago, but will use a small bank 40 miles west of the city. He believes the payment float for payroll will increase by 4 days.

The Buher Company’s four hotels have average sales of $10,000,000 each, and the payroll costs approximate 30% of total sales. However, payroll costs include fringe benefits and taxes, so that net pay to the employees is only twothirds of the total payroll costs. Assume funds can be invested at an annual rate of 10%.

Required:

1. Determine the total annual net pay to employees for the four hotels.

2. If the centralized payroll system is installed, what is the potential annual interest that can be earned? Assume a banking year of 360 days.

3. List and briefly discuss the major benefits (including financial and operational) of this proposed system.