Determine whether to switch to electronic payment

Assignment Help Financial Management

Reference no: EM131464341

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 a 12% annual rate. The disbursement float on its checks averages 4 days. It estimates the variable cost 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 generously agreed to pay any switchover costs necessary to make ACD “financial EDI-ready”. The credit period for electronic payments would be 48 days.

a. Should ACD switch to electronic payments?

b. ACD decides not to go with the switchover. One year later, the supplier approaches ACD again and asks for a reconsideration. What are the present values of check and electronic payment if the annual opportunity rate on funds has dropped to 8%? How does this affect the relative attractiveness of electronic payments.

c. Is there any reasonable opportunity cost of funds (i.e, less than 30%) for which your recommended payment method would change?

Reference no: EM131464341

Questions Cloud

Account immediately after you make first withdrawal : How much will be in account immediately after you make first withdrawal.

What are the present values of check and electronic payment : What are the present values of check and electronic payment if the annual opportunity rate on funds has dropped to 8%?

With interest on outstanding balances paid monthly : As a jewelry store manager, you want to offer credit, with interest on outstanding balances paid monthly.

Prepare the appropriate journal entries at maturity : When Patey Pontoons issued 4% bonds on January 1, 2016, Prepare the appropriate journal entries at maturity on December 31

Determine whether to switch to electronic payment : ACD, Inc. a computer parts company, presently pays its largest supplier by check and is trying to determine whether to switch to electronic payment.

Resulting return on asset-funders'' investment for two firm : Calculate the income available to pay the asset funders and resulting return on asset-funders' investment for the two firms.

You are at retirement age and one of your benefit options : You are at retirement age and one of your benefit options is to accept a monthly annuity of $6,900 for 20 years.

Successful tax planning : What advice would you give a wealthy family with 5 children and a prosperous family business so that they can do successful tax planning?

Credit card fees and delivery services : Where can the medical center reduce these fixed costs? Credit card fees. Delivery services

User Account

All Pages