7-3 City Farm Insurance has collection centers across the country to speed up collections. The company also makes its disbursements from remote disbursement centers so checks written by City Farm take longer to clear the bank Collection time has been reduced by two and disbursement time increased by one day because of these policies. Excess funds are being invested in short-term instruments yield ing 12 percent per annum a. If City Farm has $5 million per day in collections and $3 million per day in disbursements, how many dollars has the cash management system freed b. How much can City Farm earn in dollars per year on short-term investments made possible by the freed-up cash? Solution: City Farm Insurance a. $5000,000 daily collections x 2.0 days speed up $10,000,000 additional collections S3,000,000 daily disbursements x 1.0 days slow down= $3.000.000 delayed disbursements $13,000,000 freed-up funds b $13,000,000 freed-up funds 12% interest rate S 1, 560,000 interest on freed-up cash CopyrightC 2005 by The McGray-Hill Companies, Inc.Copyright © 2005 by The McGraw-Hill Companies, Inc. S-246 7-3. City Farm Insurance has collection centers across the country to speed up collections. The company also makes its disbursements from remote disbursement centers so checks written by City Farm take longer to clear the bank. Collection time has been reduced by two and disbursement time increased by one day because of these policies. Excess funds are being invested in short-term instruments yielding 12 percent per annum. a. If City Farm has $5 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 City Farm earn in dollars per year on short-term investments made possible by the freed-up cash? Solution: City Farm Insurance a. $5,000,000 daily collections x 2.0 days speed up = $10,000,000 additional collections $3,000,000 daily disbursements x 1.0 days slow down = $ 3,000,000 delayed disbursements $13,000,000 freed-up funds b. $13,000,000 freed-up funds x 12% interest rate $ 1,560,000 interest on freed-up cash