HK Currently require customers to make 15% cash deposit when they place their order and pay the balance in cash when they take delivery of their boat. Hk's senior management has just completed a review of the firm's credit policies in the context of entering the motor vessel market. On the basis of this review, the executive inteds to recommend to senior management that the deposit be raised to 25% for sales of motor vessels but retained at 15% for sailboats, while still requiring the balance in cash at time of delivery.

b) Assume that HK intends to keep its cash balance at 2.5% of the year's projected sales and it is charged 8% interest by its bank on its revolving line of credit. How much will the available incremental cash increase by in the first year, and how will it benefit the firm if it isn't being retained as cash? Use calculations to quantify and support you answer.