MGT 325 Module 3 Cash Management Examples The examples below illustrate how the firm manages its cash with regards to accounts receivable and inventory management. Working capital management, including current asset management, are covered extensively in Chapters 6 and 7 of your textbook. Beth's Society Clothiers, Inc., has collection centers across the country to speed up collections. The company also makes payments from remote disbursement centers so the firm's checks will take longer to clear the bank. Collection time has been reduced by two and one-half days and disbursement time increased by one and one-half days because of these policies. Excess funds are being invested in short-term instruments yielding 6 percent per annum. Required: a. If the firm has $4 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 the firm earn in dollars per year on short-term investments made possible by the freed-up cash? Solutions: a. If the firm has $4 million per day in collections and $3 million per day in disbursements, how many dollars has the cash management system freed up? Assumptions: Daily collections $4,000,000 Reduction in collection time 2.5 days Daily disbursements $3,000,000 Increase in disbursement time
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