A company is considering changing its pay period for its salaried management from every two weeks to paying salaries monthly. The CEO indicates that the managers bimonthly payroll is $1.8 million and is expected to stay that way. With the bimonthly system, there were 2.2 pay periods in a month. Since the managers will be paid monthly, the payroll will be about $4 million (2.2 x $1.8 million). The annual cost of the new health care plan $180,000. The CEO believes that the managers salaries accrue at a constant rate over the pay period, the average salaries over the period can be estimated by dividing the total amount by 2. The firm believes that it can earn 15% annually on any funds made available through the accrual of the managers salaries.
a. How much additional financing will the company obtain as a result of switching pay period for managers salaries from every two weeks to monthly and What is the net gain (loss) on the proposal?
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