Tritonic is considering switching from depository transfer checks to using wire transfers for sending funds from its local banks to its bank in Chicago. The cost of the wire transfer is $5.25 more than the cost of depository transfer checks. The change would reduce the total float by 3 days. Tritonic can earn 8.5% on the funds released through the more efficient transfer. If Tritonic has 30 local banks, what annual sales level would the firm require before the change to wire transfers would be profitable? (Assume there are 250 business days each year.)

Question

Quizplus · Accepted Answer

The annual benefit from reducing the float by 3 days is calculated by multiplying the daily interest rate (8.5% annual rate / 250 business days = 0.034% per day) by the amount of funds released 3 days earlier due to the switch to wire transfers. The cost of switching to wire transfers for all 30 local banks is the additional cost per transfer ($5.25) times the number of banks (30) times the number of business days (250). Setting the annual benefit equal to the annual cost and solving for the amount of funds gives the required annual sales level.

Tritonic Is Considering Switching from Depository Transfer Checks to Using