Question

If a company can implement cash management systems and save three days by reducing remittance time and one day by increasing disbursement time based on $2,000,000 in average daily remittances and $2,500,000 in average daily disbursements and its return on freed-up funds is 10%, what is the maximum that it should spend on the system

Answer 1

Answer: $850,000

Explanation:

The maximum amount that'll be spent on the system goes thus:

Additional collections will be:

= $2,000,000 × 3 days

= $6,000,000

Delayed disbursements will be,:

= $2,500,000 × 1 day

= $2,500,000

Then, the increment on funds will be:

= Additional collection + Delayed disbursement

= $6,000,000 + $2,500,000

= $8,500,000

Hence, maximum amount will be:

= 10% × $8,500,000

= $850,000