Question

The Essex Company found that an average of 10 days elapses between when customer payments are received and the deposited funds clear the customer's bank and become usable by the firm. Essex's annual sales are $240 million. (Assume 365 days per year when converting from annual data to daily data or vice versa.) What is the increase in Essex's average cash balance assuming that it can reduce the time required to process customer payments by 3 days through more efficient payment processing methods

Answer 1

$1,972,602.74

Step-by-step explanation:

According to the scenario, computation of the given data are as follow:-

Increase in Essex’s Average Cash Balance = (Annual Sales ÷ Days Per Year) × Required Process Customer by Days

= (240,000,000 ÷ 365) × 3

= 657,534.25 × 3

= $1,972,602.74

According to the analysis, Increase in Essex’s average cash balance is $1,972,602.74