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  3. 3. your firm currently processes checks with a dec

3. Your firm currently processes checks with a decentralized company processing center. Collection float with...

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Accounting

3. Your firm currently processes checks with a decentralized company processing center. Collection float with this collection system is 6 days. For the decentralized company processing center variable processing costs per check and annual fixed costs are $0.50 and $30,000, respectively. Alternatively, your firm could switch to a centralized processing center that would lower collection float to 5 days. With this system, variable processing costs per check and annual fixed costs would be $0.30 and $40,000, respectively. Your firm processes 300,000 checks each year with an average face value of $250 per check. The firm has a line of credit with a large outstanding balance priced at an interest rate of 4%. Based on this information, which collection system would maximize firm value?

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