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city farm insurance has collection centers across the country to speed up collections. the company also makes its disbursements from remote disbursement centers, so the firm's checks will take longer to clear the bank. collection time has been reduced by four days and disbursement time increased by two days because of these policies. excess funds are being invested in short-term instruments yielding 4 percent per annum. a. if city farm has $4.15 million per day in collections and $3.20 million per day in disbursements, how many dollars has the cash management system freed up? (enter your answer in dollars not in millions (e.g., $1,234,567).)

Respuesta :

Excess funds are invested in short-term instruments yielding 4 percent per annum. a. if city farm has $4.15 million per day in collections and $3.20 million per day in disbursements, Total cash freed up = $22,750,000

Cash freed up from collection equals daily collection amount times the shorter collection period.

= 4,500,000 x 3.5 days

= 15,750,000

funds freed up from Disbursement = Daily disbursement amount times lengthened disbursement period

= 3,500,000 x 2 days

= 7,000,000

15,750,000 plus 7,000,000 in total cash were released.

Short-term instruments include, but are not limited to, certificates of deposit, bankers' acceptances, commercial paper, treasury bills, and agency discount paper. Short-term instruments are issued by a variety of different issuers, such as governments and businesses, and have a maturity of less than one year.

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= 22,750,000

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