Beth’s Society Clothiers, Inc

Beth’s Society Clothiers, Inc., has collection centers across the country to speed upcollections. The company also makes payments from remote disbursement centers so thefirm’s checks will take longer to clear the bank. Collection time has been reduced bytwo and one-half days and disbursement time increased by one and one-half daysbecause of these policies. Excess funds are being invested in short-term instrumentsyielding 6 percent per annum.

a. If the firm has $4 million per day in collections and $3 million per day indisbursements, how many dollars has the cash management system freed up?

b. How much can the firm earn in dollars per year on short-term investments madepossible by the freed-up cash?