Problem: City Farm Insurance has collection centers accross the country to speed up collections. The company also makes disbursements from remote disbursement centers so checks from City Farm take longer to clear the bank. Collection time has been reduced by two days and disbursement time has been increased by one day as a result. Excess funds are invested in short-term instruments yeilding 12% per year.
a) If City Farm has $5M per day in collections and $3M 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 in investments made possible by the freed up cash?