Reference no: EM131120320

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 center's local bank, and a depository transfer check for the amount of the deposit is mailed to the firm's concentration bank in New York. An average of 5 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 3 days. Depository transfer checks cost $0.50 (including postage), and wire transfers cost $10.Assume there are 250 working days per year. Peterson can earn 7 percent before taxes on any funds that are released through more efficient collection techniques.

Determine the net (pretax) benefit to Peterson of using wire transfers if annual sales are 

a. $15 million

b. $75 million

Suppose Peterson is considering using electronic depository transfer checks, rather than mail depository transfer checks, to move funds from its six collection centers to its concentration bank. Electronic depository transfer checks would reduce collection time by 2 days and would cost $2.50 each.

Determine the net (pretax) benefit to Peterson of using electronic depository transfer checks if annual sales are

c. $15 million

d. $75 million