Question
Peterson Electronics uses a decentralized collection system whereby customers mail their payments to one of six regional collection centers. The checks are deposited each working
Peterson Electronics uses a decentralized collection system whereby customers mail their payments to one of six regional collection centers. The checks are deposited each working day in the collection centers local bank, and a depository transfer check for the amount of the deposit is mailed to the firms concentration bank in New York. On average, 7 days elapse between the time the checks are deposited in the local bank and the time the funds become collected funds (and available for disbursements) at the concentration bank. Peterson is considering using wire transfers instead of depository transfer checks in moving funds from the six collection centers to its concentration bank. Wire transfers would reduce the elapsed time by 5 days. Depository transfer checks cost $0.50 (including postage), and wire transfers cost $5. Assume there are 250 working days per year. Peterson can earn 8 percent before taxes on any funds that are released through more efficient collection techniques. Assume that there are 365 days per year. Determine the net (pretax) benefit to Peterson of using wire transfers if annual sales are $74m. Round your answer to the nearest dollar. Enter your answer in whole dollars. For example, an answer of $1.20 million should be entered as 1,200,000 not 1.20. Don't forget the negative sign if it is negative.
Hint: There are six centers so multiply by the wire transfer cost by six.
Hint: Sales occur 365 days out of the year but someone has to be in the office to make a wire transfer.
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