Nicholas Birdcage Company of Hollywood ships cages throughout the country Nicholas has determined that through the establishment of local collection centers around the country, he can speed up the collection of payments by one d one-half days. Furthermore, the cash management department of his bank has indicated to him that he can defer his payments on his accounts by one-half day without affecting suppliers. The bank has a remote disbursement center in Florida a. If the company has $4 million per day in collections and $2 million per day in disbursements, how many dollars will the cash management system free b. If the company can earn 9 percent per annum on freed up funds, how much zill th e income c. If the total cost of the new system is $700,000, should it be implemented? Solution: Nicholas birdcage company of hollywood a.$4,000,000 daily collections x 1.5 days speed up=$6,000,000 additional collections $2,000,000 daily disbursements x 5 days slow down=$1,000000 delayed disbursements $7,000,000 freed-up funds b $7,000,000 freed-up funds interest rate $630.000 interest on freed-up cash c. No. The income of $630.000 is $70.000 less than the cost of $700,000 for the new system S-247 Copyright C2005 by The McGra-Hill Companies, Inc.Copyright © 2005 by The McGraw-Hill Companies, Inc. S-247 7-4. Nicholas Birdcage Company of Hollywood ships cages throughout the country. Nicholas has determined that through the establishment of local collection centers around the country, he can speed up the collection of payments by one and one-half days. Furthermore, the cash management department of his bank has indicated to him that he can defer his payments on his accounts by one-half day without affecting suppliers. The bank has a remote disbursement center in Florida. a. If the company has $4 million per day in collections and $2 million per day in disbursements, how many dollars will the cash management system free up? b. If the company can earn 9 percent per annum on freed up funds, how much will the income be? c. If the total cost of the new system is $700,000, should it be implemented? Solution: Nicholas Birdcage Company of Hollywood a. $4,000,000 daily collections x 1.5 days speed up = $6,000,000 additional collections $2,000,000 daily disbursements x .5 days slow down = $1,000,000 delayed disbursements $7,000,000 freed-up funds b. $7,000,000 freed-up funds x 9% interest rate $ 630,000 interest on freed-up cash c. No. The income of $630,000 is $70,000 less than the cost of $700,000 for the new system