Tokyo Electric Company (TEC) sells most of its products in the United States through 50 large distributors and retail chains (e.g., Sears, Kmart, etc.). Currently, TEC’s customers mail their payments, which are due monthly, to the company. The company is considering having its customers make payments by wire transfer on the dates payments are due. TEC’s financial analysts expect this method of payment would reduce average mailing and check-clearing time by 5 days. Any funds released by this system could be reinvested in the firm to earn 8 percent before taxes. The cost to TEC (including a $15 per payment rebate to customers) would be $30 per payment.
Determine the net (pretax) benefits to TEC of using a wire transfer payment system if monthly payments from each customer average:
a. $25,000
b. $50,000