CHAPTER 7

Answer 1:
Given:
Collection time reduced by 2.5 days
Disbursement time increased by 1.5 days
Excess funds invested in short- term investments yield 6% per annum.
a)
Additional collection: daily collection x day speed up
$4,000,000 daily collections x 2.5 days speed up: $10,000,000 additional collections.
Delayed disbursement: daily disbursement x day slowed down
$3,000,000 daily disbursements x 1.5 days slow down: $4,500,000 delayed
disbursements.
Freed up funds: Additional collection + delayed disbursement
: $14,500,000

b) Earning per year on short-term investment by freed-up cash: 6% of freed up cash

: 6% of $14,500,000
: $870,000
Answer 2:
Given:
Collection speed up time: 1.5 days
Disbursement slowed down time: 1.5 days
Earning on freed-up funds: 9% per annum.
a)
Additional collection: daily collection x day speed up
$2,000,000 daily collections x 1.5 days speed up: $3,000,000 additional collections.
Delayed disbursement: daily disbursement x day slowed down
$1,000,000 daily disbursements x 1.5 days slow down: $1,500,000 delayed
disbursements.
Freed up funds: Additional collection + delayed disbursement
: $4,500,000

b) Earning on freed-up funds: 9% of freed up cash.

: 9% of $4,500,000
: $405,000

c) Yes, the annual income of $405,000 is $30,000 more than the cost of $375,000 of
implementation of the new system.

Answer 3:
Orbital Communications:
$35,000 X 1.12: $39,200
$39,200 X 106%: $41,552-dollar value of holdings.

Answer 4:
Postal Express:
a)
$130,000 x 1.10: $143,000
$143,000 x 80%: $114,400- dollar value of holdings.

b)
$130,000 x 1.08: $140,400
$140,400 x 112%: $157,248- dollar value of holdings.