Evaluating his firm disbursement system

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Reference no: EM132012051

Joe Cue, assistant treasurer at Ocean Floor Drilling, is evaluating his firm's disbursement system. He has determined that each check cost $1.10, while an ACH only costs $0.10. The firm's opportunity cost of funds is 5%. Jow estimates that it would cost about $15,000 to fully swtich from check to ACH - based disbursements. Further, Joe expects that the firm will make 2,000 disbursements per yeears. Using the information from above, calculate the NPV of switching to ACH. Assume that the firm will remain a going concern in perpetuity.

Now, Joe wants to examine the sensitivity of the NPV with respect to the model's variables.

Upon further review, Jow determines that, in past years, the firm has had as fe as 500 disbursements and as many as 10,000 disbursements. Calculate and interpret the NPV for both scenarios.

Reference no: EM132012051

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