Book: Contemporary Financial Management (13 edition)

Chapter 17, Problem 8

The High- Rise Construction Company, located in Houston, receives large remittances (that is progress payments) from customers with whom it has contracts. These checks are frequently draw in New York City Banks. If the checks are deposited in High-Rise's Houston Bank, the funds will not become collected balance and usable by the firm until 2 business day later. In other words, deposits made on Monday, become available for use on Wednesday, and deposits made on Friday become available to the firm on the fallowing Tuesday. However, if High-Rise sends an employee to New York with the check and se presents it for payment at the bank upon which it is drawn, the funds will be available immediately (that is the same days) to the firm. Assuming that High-Rise can earn 6% on short-tem investments and that the cost of sending an employee to New York to present the check for payment is $350, determine the following:

1. How can i calculated the net pre tax benefit to the firm of using special handling procedure for 1 millon check received on monday and on friday.

2. the amount of check on wich the firm just "breaks even" (thast is the net pretax benefit equals zero) using the special handling procedure, assuming that the check is received on the following days. I.Monday II. Friday