What is the npv of switching from checks to ach

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Q1) The firm is evaluating their disbursements. Each check costs $ 1.08 while an ACH only costs $0.11. It would cost $14,750 to fully switch from checks to ACH-based disbursements. The opportunity cost of funds is 8 percent. Further, the firm expects to make 2,100 disbursements per year. Assume that the firm will remain a going concern in perpetuity. What is the NPV of switching from checks to ACH?

Q2. The firm recently purchased capital equipment for $56935. Assume that the financial manager wants to disregard the cost differential between the ACH and the check (because its a one-time transaction and because the difference is so small). What is the present value of paying by check?

Transaction trade credit terms of net 45 days

ACH days of float 1 day

Discount available if pay with ACH 0.25%

Days of float provided by check 3 days

Cost of capital 12%

Reference no: EM133183931

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