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 their return on freed-up funds is 10%, what is the maximum that they should spend on the system?
A)$2,000,000
B)$650,000
C)$850,000
D)$1,000,000

Question

Quizplus · Accepted Answer

The company saves 3 days on remittances and 1 day on disbursements, freeing up funds for 4 days. The total freed-up funds are $2,000,000 * 3 + $2,500,000 * 1 = $8,500,000. With a 10% return, the annual benefit is $8,500,000 * 0.10 = $850,000. Thus, the maximum they should spend is $850,000.

If a Company Can Implement Cash Management Systems and Save