Chapter 7
Problems
1. City
Farm Insurance has collection centers across the country to speed up
collections. The company also makes its disbursements from remote disbursement
centers. The collection time has been reduced by two days and disbursement time
increased by one day because of these policies. Excess funds are being
invested in short-term instruments yielding 12 percent per annum.
a. If City Farm has $5 million per day in collections and $3
million per day in disbursements, how many dollars has the cash management
system freed up?
b. How much can City Farm earn in dollars per year on short-term
investments made possible by the freed-up cash?
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