ACD, Inc., a computer parts company, presently pays its largest supplier by check and is trying to determine whether to switch to electronic payment. Its present credit period is 45 days. Its opportunity cost for funds is 8% annually. The disbursement float on its checks averages 4 days. It estimates the variable costs per check to be $8.35. Its average payment to the supplier is $20,000. Using ACH debits initiated by its supplier would result in per-payment charges of $3 and clearance float of 1 day. Its supplier has generally agreed to pay any switchover costs necessary to make ACD financial EDI-ready. The credit period for electronic payments would be 48 days. Should ACD switch to electronic payments?

USE THIS FORMULA:

pv of ACH = ((Invoice*(1- Discount%)/1+((TC+DF with ACH)*(i/365))+Cost of ACH

pv of Check = Invoice/1+((TC+DF with Check)*(i/365))+Cost of Check