Extra Credit - St. Hubbins should change to the arrangement...

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Ryan Alexander Extra Credit 11/23/09 Calculations of NPV from Switching to ACH Benefits: Avg. money collected by collection center each day - $155,000 Combined avg. money collected daily - $155,000 X 4 = $620,000 Collection time will be decreased by 12 days due to the daily collection of the ACH, therefore the ACH system releases $620,000 X 12 = $7,440,000 Interest earned in this case would be $7,440,000 X 0.00016 = 1,190.40 per day Costs: Costs for the ACH system account for $700 per day NPV: Benefits – Costs 1,190.40 – 700 = 490.40 Due to the positive NPV, this would be an acceptable project to undergo.
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Unformatted text preview: St. Hubbins should change to the arrangement offered by First Booneville. The cost that would make the company indifferent between the two systems would be the cost for the ACH that would make the NPV = 0. Therefore, the following calculation is used to find the cost at which NPV = 0. 0 = 1,190.40 – X X = 1,190.40 At this cost the company will see the same results with either system. Therefore, the two systems are indifferent financially....
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This note was uploaded on 03/28/2010 for the course BUS 011823 taught by Professor Smith during the Spring '10 term at ITT Tech Flint.

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