Question

Direct send-Single. Ocean Research of San Diego, California, just received a check in the amount of $800,000 from a customer in Bangor, Maine. If the firm processes the check in the normal manner, the funds will become available in 6 days. To speed up this process, the firm could send an employee to the bank in Bangor in which the check is drawn to present it for payment. Such action will cause the funds to become available after 2 days. If the cost of the direct send is $650 and the firm can earn 11% on these funds, what recommendation would you make? Explain.

Answer 1

Direct send-Single. Ocean Research of San Diego, California, just received a check in the amount of $800,000 from a customer in Bangor, Maine. If the firm processes the check in the normal manner, the funds will become available in 6 days. To speed up this process, the firm could send an employee to the bank in Bangor in which the check is drawn to present it for payment. Such action will cause the funds to become available after 2 days. If the cost of the direct send is $650 and the firm can earn 11% on these funds, what recommendation would you make? Explain.

Answer 2

Well, since you can invest the $800,000 @ 11% (for four days), the net return from sending an employee to Bangor is
\[$800,000*[ (1.11)^{\frac{ 4 }{ 365 }}-1] = $915.46\]
which more than covers the $650 that it costs to get the funds earlier. So it sounds like you would want the funds earlier.

As long as that $650 covers the cost of the flight from San Diego to Bangor. Jeez...