1. Joe Cue, assistant treasurer at Ocean Floor Drilling, is evaluating his firms disbursement system. He has determined that each check costs $1.10, while an ACH only costs $0.10. The firms opportunity cost of funds is 5%. Joe estimates that it would cost $15,000 to fully switch from check to ACH-based disbursements and that the firm will make 2,000 disbursements per year in perpetuity. Joe will make his decision based on NPV and plans on examining the sensitivity of the NPV to changes in the model assumptions.

1. Using the original assumptions, calculate the NPV of switching to ACH and interpret your calculation.

2. Determine the break-even NPV with respect to 1) the number of disbursements, 2) the cost savings per disbursements, and 3) the annual opportunity cost rate. Interpret your calculations.