The process of developing cash transfer rules for the firm

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Scott, the treasury manager of Weiland Inc., is in the process of developing cash transfer rules for the firm. Currently, the firm’s bank charges $15 per wire and $0.50 per EDT. The EDT takes 1 day longer to clear. Scott believes that the firm’s current investment-opportunity rate is 4%. T he firm does not currently earn earnings credits on account balances.

a. What is the minimum transfer balance that justifies a wire transfer?

b. Suppose that Scott has negotiated an ECR of 0.5% on account balances (the RRR is 10%). What is the minimum transfer balance that justifies a wire transfer?

c. Suppose that a year later, Scott renegotiates with the firm’s lender so that the new ECR is 0.75% (the RRR is still 10%). Would Scott need to revise the transfer rule? If so, what would the revised minimum transfer be?

Reference no: EM131528537

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