Intro

VeloCity Corp. is considering a new cash management system with many local collection centers to receive checks earlier and one remote disbursement center to delay payment checks. The system will reduce the average collection period by 3 days and increase the payables period by 1 days.

Average daily cash collections are $58,000 and average daily cash disbursements are $55,000.

Surplus cash can be invested in marketable securities at an annual interest rate of 4%.

Attempt 1/8 for 10 pts.

Part 1

How much money will the new cash management system free up?

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Attempt 1/8 for 10 pts.

Part 2

How much interest income can the firm earn from the released cash each year?

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