Dexter Instrument Company’s sales average $3 million per day.
a. If Dexter could reduce the time between customers’ mailing their payments and the funds becoming collected balances by 2.5 days, what would be the increase in the firm’s average cash balance?
b. Assuming that these additional funds can be invested in marketable securities to yield 8.5 percent per annum, determine the annual increase in Dexter’s (pretax) earnings.