Note: first year projected sales= 12,500,000

'HK currently requires customers to make a 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 intends 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 the time of delivery.

HK requires its customers to make a 15% deposit at the time of order and pay the balance at the time of delivery. The average lag between the time of order and delivery is two months. Sales occur uniformly throughout the year.

HK has a policy of keeping a cash balance throughout the year equal to 2.5% of expected sales for the year, and an inventory balance throughout the year equal to 25% of expected COGS for the year. The cash balance is essentially funded by the required customer deposits and is invested in marketable securities at an average rate of 0.5%.

HK's suppliers currently offer terms of 1/10, net 60 on all purchases.'

Question: 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 your answer.