The following data were recently collected by the cash manager at Rayco Department Stores, Inc.
Day Dollar Deposit
Monday $1,500
Tuesday 2,000
Wednesday 1,000
Thursday 10,000
Friday 25,000
Saturday 35,000
Sunday 10000
These daily deposits are typical of Rayco's 10 regional stores. Rayco is headquartered in Oklahoma City and concentrates cash from the 10 local deposit banks to its concentration bank in Oklahoma City. You may assume that Rayco's opportunity investment rate is 10 percent, the ECR is 6 percent, and the reserve requirement is 12 percent. Further assume that Rayco uses EDTs to concentrate the cash balances and that the EDT is initiated on the day of deposit and clears the next day. Deposits are made before the daily ledger cut-off time. Also, 60% of each deposit is cash and 40% is in checks with I-day availability. Finally, assume that no bank clearing activity is conducted on the weekends and the beginning ledger and collected balance for the first week are equal to zero.
a. Assuming that the deposit schedule is typical of each week, create two weeks of deposit and transfer clearing activity similar in format to Exhibits 10-5 through 10-10.
b. Calculate the average collected balance at the typical deposit bank.
c. Assuming that each EDT costs $1.50, calculate the dollar amount of collected balances required to compensate the deposit bank.
d. What is the total cost of the cash concentration system for one bank for one week?