Question

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 $2.70 million per day in collections and $1.14 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).)

Answer 1

$7,320,000

Step-by-step explanation:

Given that :

Speed up days allowed for collection = 2.5 days

Days allowed to defer payment = 0.5 days

If collection per day = $2.70 million

Disbursement per day = $1.14 million

Amount collected × allowewed speed up days

$2,700,000 × 2.5 = $6,750,000

Amount disbursed × defer days allowed

$1,140,000 × 0.5 = $570,000

Freed up space :

$6,750,000 + $570,000

= $7,320,000