City Farm Insurance has collection centersacross the country to speed up collections. The company also makes itsdisbursements from remote disbursement centers so checks written byCity Farm take longer to clear the bank. Collection time has been reduced bytwo days and disbursement time increased by one day because of thesepolicies. Excess funds are being invested in short-term instruments yielding 12percent per annum.
a. If CityFarm has $5 million per day in collections and $3 million per dayin disbursements, how many dollars has the cashmanagement system freed up?
b. How much can City Farm earn in dollars per year on short-term investments made possible by the freed-upcash?