Question
A treasurer at Red Wolf Inc. is evaluating the firm's disbursement policy. From this evaluation, it is determined that each check costs $1.00 to clear,
A treasurer at Red Wolf Inc. is evaluating the firm's disbursement policy. From this evaluation, it is determined that each check costs $1.00 to clear, while an ACH only costs $0.15. The firm's opportunity cost of funds is 4%. The treasurer estimates that it would cost about $200,000 to switch from a check-based disbursement system to an ACH-based disbursement system. Historically, the treasurer notes that the firm has averaged 20,000 disbursements per year.
What is the NPV of the decision to switch to ACH?
| a. | $282,500 | |
| b. | $265,000 | |
| c. | $225,000 | |
| d. | $242,500 |
How many disbursements would be required for this switch to be feasible from an NPV perspective?
| a. | $9,044.98 | |
| b. | $9,411.76 | |
| c. | $9,233.65 | |
| d. | $9,622.87 |
What is the maximum opportunity cost at which the decision to switch is still manageable?
| a. | 7.6% | |
| b. | 9.4% | |
| c. | 6.7% | |
| d. | 8.5% |
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Business Finance
Authors: Brian Watts
8th Edition
0712110720, 978-0712110723
