Note: When converting annual data to daily data or vice versa in these problems, assume there are 365 days per year.

Problem 1: The White Oak Company's annual sales are $219 million. An average of 9 days elapses between when a customer mails its payment and when the funds become usable by the firm. a. If the company could speed up the collection of funds by 2 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 that yield 7 percent per year, determine the increase in White Oak's annual (pretax) earnings.

Problem 2: Builders Circle, a hardware and building supplies company, processes all its customer credit card payments at its Atlanta headquarters. A Boston bank has offered to process the payments from Builders Circle customers located in the New England region for $50,000 per year plus $0.20 per payment. No compensating balance will be required. Under this lockbox arrangement, the average mailing time for payments would be reduced from 3 days to 1.5 days. Check processing and clearing time would be reduced from 5 days to 2. Annual collections from the New England region are $292 million. The total number of payments received annually is 600,000 (an average of $50,000 credit card holders x 12 payments per year). Assume that any funds released by this lock arrangement can be invested by Builders Circle to earn 10 percent per year before taxes. The establishment of a lockbox system for the New England region will reduce payment processing costs at its Atlanta headquarters by $40,000 per year. Using this information, determine a. The amount of funds released by this lockbox arrangement. b. The annual (pretax) earnings on the release funds. c. The annual fee that Builders Circle mus pay the Boston bank for processing the payments. d. The annual net (pretax) benefits Builders Circle will receive by establishing this lockbox arrangement with the Boston bank.