Normas Cat Food of Shell Knob ships

Solve the following problem. Norma’s Cat Food of Shell Knob ships cat food throughout the country. Norma 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 Iowa.

1. If the company has $5 million per day in collections and $3 million per day in disbursements, how many dollars will the cash management system free up?  Justify your answers.
2. If the company can earn 8 percent per annum on freed-up funds, how much will the income be? Justify your answers.
3. If the annual cost of the new system is $800,000, should it be implemented? Explain why or why not.

Consider setting your paper up as follows:

• Introduction
• Answer A- Cash management system will free up and justified the response
• Answer B- Correctly calculated income and justified response
• Answer C- Clearly explained if the new system should be implemented
• Conclusion