Question

Neon Light Company of Kansas City ships lamps and lighting appliances throughout the country. Ms. Neon...

Neon Light Company of Kansas City ships lamps and lighting appliances throughout the country. Ms. Neon has determined that through the establishment of local collection centers around the country, she can speed up the collection of payments by two and one-half days. Furthermore, the cash management department of her bank has indicated to her that she can defer her payments on her accounts by one-half day without affecting suppliers. The bank has a remote disbursement center in Florida.  

A) If Neon Light Company has $3.00 million per day in collections and $1.20 million per day in disbursements, how many dollars will the cash management system free up? (Enter your answer in dollars not in millions (e.g., $1,234,567).)

Freed-up funds

b. If Neon Light Company can earn 6 percent per annum on freed-up funds, how much will the income be? (Enter your answer in dollars not in millions (e.g., $1,234,567).)

Interest on freed-up cash

Homework Answers

Answer #1
Answer
Answer a
Freed Up Funds = (Saving in collection days * Collection per day) + (Saving in disbursement days * Disbursement per day)
(2.5 days * $3 million) + (0.5 days * $1.20 million) = $8.36 million i.e.$83,60,000
7.5 Million + $ 0.6 Million .
8.1 Million
Answer b
Freed up funds = $81,00,000
Interest rate per annum = 6%
Interest Income freed up Cash for the year = $81,00,000 * 6% = $4,86,000

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