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City Farm Insurance has collection centers across the country to speed up collections. The company also makes its disbursements from remote disbursement centers, so the
City Farm Insurance has collection centers across the country to speed up collections. The company also makes its disbursements 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 5 percent per annum. o. If City Farm has $4.30 million per day in collections and $3.50 million per day in disbursements, how many dollars has the cash management system freed up? (Enter your answer In dollors not In millilons (e.g., \$1,234,567).) b. How much can City Farm earn in dollars per year on short-term investments made possible by the freed-up cash? (Enter your answer In dollers not In millions (e.g., \$1,234,567).) Dome Metals has credit sales of $414,000 yearly with credit terms of net 60 days, which is also the average collection period. a. Assume the firm offers a 4 percent discount for payment in 10 days and every customer takes advantage of the discount. Also assume the firm uses the cash generated from its reduced receivables to reduce its bank loans which cost 10 percent. What will the net gain or loss be to the firm if this discount is offered? (Use a 360-day year.) Answer is complete but not entirely correct. b. Should the firm offer the discount? No Yes
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