Fast Bucks Inc.has offered to set up a concentration banking system that will save three days of mail float and one day of presentation float.Your receivables average $20,000 per day and the opportunity cost of funds is 6 percent.How much would you be willing to pay Fast Bucks annually to administer the system perpetually?

Question

Quizplus · Accepted Answer

The annual savings from the concentration banking system would be 4 days x $20,000 x 6% = $4,800. Therefore, the maximum amount that the company should be willing to pay annually for the system is $4,800. Choice A ($2,400) is too low and would not provide a sufficient return on investment. Choice C ($40,000) and choice D ($80,000) are both too high and would eliminate the cost savings benefit of implementing the system. Therefore, the best choice is B ($4,800).