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Various contractual arrangements entered into by Nusbaum Company require it to maintain a minimum balance of cash and cash equivalents of $1,000,000. The company's balance is dipping near that level, and the CFO is considering strategies to avoid a shortfall.

Evaluate the following ideas and assess the relative merits and costs of each.

The company has a 1-year certificate of deposit, and it is earning 5% interest. The bank has offered to swap this CD for a 1-month CD bearing a 4.5% interest rate.

The company holds significant investments in "trading" securities. These investments have typically yielded about 8% per year. The company can sell these securities and convert the proceeds to cash.

The company carries several million dollars of accounts payable, terms 2/10, n/30. The company always takes the discount but can delay payment to preserve cash.

The company can begin to offer cash discounts of 1/10, n/30 on its receivables, and anticipates that this would greatly speed cash collections. The company maintains a significant investment in postage stamps and travel advances. The company can buy postage "as needed" via an internet-linked postage meter, and the company can do away with travel advances and provide key employees with a company credit card to use for travel costs.

The company is considering establishing a line of credit that enables it to borrow, on demand, up to $5,000,000 in cash. The bank will charge a $12,500 annual fee for making this credit line available to the company. Any borrowed funds will accrue interest at the established London Interbank Offered Rate (LIBOR) plus 1%.

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