The cash manager of bronco inc is contemplating the choice, Ask an Expert

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The cash manager of Bronco, Inc., is contemplating the choice between using a wire transfer and an EDT. She estimates that her investment opportunity rate is 8 percent. The banks ECR is currently 5 percent and the reserve requirement is 12 percent. Her bank account officer informs her that a wire transfer will cost $20 and will provide collected balances one day earlier than the EDT which cost $0.75.

A. Assume that the balances transferred are above the balances required to compensate the deposit bank for services. Calculate the minimum transfer balance required to justify the use of a wire transfer.

B. Assume that the balances transferred are below the balances required to compensate the deposit bank. Calculate the minimum transfer balance required to justify the use of a wire transfer.

C. Why are the answers in two preceding parts different?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92273053

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