Currently Nemonix Is Using a Decentralized Collection System Whereby Customers

question 1

Multiple Choice

Currently Nemonix is using a decentralized collection system whereby customers mail their checks to one of the firm's eight regional locations. Its annual sales are $95 million. Checks are deposited each business day in a local bank, and the amount of the deposit is sent to the firm's concentration bank in Dallas. The average time between deposit in the local bank and the availability of those funds, in Dallas, to Nemonix is 6 days. Nemonix has determined that the use of wire transfers would reduce the float by 4 days, but the transfer will cost $7.50. If transfers will be made on the 250 days that banks are open each year, should Nemonix switch to the wire transfer system? Why or why not? Assume that Nemonix can earn 8% on the funds released through this more efficient transfer.

• A) Yes; savings of $106,600
• B) Yes; savings of $61,388
• C) Yes; savings of $68,288
• D) No; loss of $6,671

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Definitions:

Mutual Life Insurance

An insurance company that is owned by its policyholders, who share in the profits through dividends or reduced premiums.

Segmented Information

Financial information that is broken down into segments, such as geographic regions, product lines, or business units, within a company's financial statements.

Operating Units

Divisions or branches within a larger enterprise, each handling operations semi-independently but under the governance of the enterprise.

Chief Operating Decision-maker

An individual or group within an organization responsible for making strategic decisions affecting the company's financial performance and operations.