Various contractual arrangements entered into by Nusbaum Company require it to maintain a minimum

balance of cash and cash equivalents of $$1,000,000.$ The company's balance is dipping near that level, and

the CFO is considering strategies to avoid a shortfall.

Evaluate the following ideas and assess the relative merits and costs of each.

The company has a $1-$year certificate of deposit, and it is earning $5\%$ interest. The

bank has offered to swap this CD for a $1-$month CD bearing a $4\mathrm{.}5\%$ interest rate.

The company holds significant investments in "trading" securities$.$ These investments have typically yielded about $8\%$ per year. The company can sell these securities and convert the proceeds to cash.

The company carries several million dollars of accounts payable, terms $2/10,$ n$/30.$

The company always takes the discount, but can delay payment to preserve cash.

The company can begin to offer cash discounts of $1/10,$ n$/30$ on its receivables,

and anticipates that this would greatly speed cash collections.

The company maintains a significant investment in postage stamps and travel

advances. The company can buy postage $"$as needed" via an internet linked postage meter, and the company can do away with travel advances and provide key

employees with a company credit card to use for travel costs.

The company is considering establishing a line of credit that enables it to borrow,

on demand, up to $$5,000,000$ in cash. The bank will charge a $$12,500$ annual fee

for making this credit line available to the company. Any borrowed funds will accrue interest at the established London Interbank Offered Rate $($LIBOR$)$ plus $1\%.$