What is the present value of check disbursement

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Reference no: EM131328285

1. Bulldog Inc. recently made a $75,000 purchase from a vendor. The vendor will accept payment by check or ACH. In either case, the vendor offers net trade credit terms of 30 days. The assistant treasurer of Bulldog Inc. notes that payment by check will provide an additional 3 days of float (beyond the 30 days of trade credit), relative to payment by ACH (assume an additional one day of float beyond the trade credit period). It costs $0.75 to process a check and costs $0.25 to process an ACH payment. In an effort to encourage Bulldog Inc. to pay via ACH, the vendor has offered a 0.50% discount for ACH payments. Assuming a discount rate of 5%, what is the present value of an ACH disbursement?

a. $74,309.69

b. $74,663.23

c. $74,583.61

d. $74,289.42

2. Following Question 1, what is the present value of a check disbursement?

a. $74,289.42

b. $74,309.69

c. $74,663.23

d. $74,583.61

3. Following Question 1, at what discount would Bulldog Inc. be indifferent between the disbursement methods?

a. 0.31%

b. 0.50%

c. 0.084%

d. 0.027%

Reference no: EM131328285

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