Quick Burger Inc., a national chain of hamburger restaurants, has accumulated a $27,000 balance in one of its regional collection accounts. It wishes to make an efficient, cost-effective transfer of $25,000 of this balance to its corporate concentration account, thus leaving a $2,000 minimum balance in the regional collection account. It has the following options:
Option 1: DTC at a cost of $1 and requiring four days to clear
Option 2: EDT at a cost of $2.50 and requiring one day to clear
Option 3: Wire transfer at a cost of $12 and clearing the same day (zero days to clear)
a. If Quick Burger can earn 6 percent on its short-term investments, assuming a 365-day year, which of the options would you recommend to minimize the transfer cost?
b. Compare Options 2 and 3, and determine the minimum amount that would have to be transferred in order for the wire transfer (Option 3) to be more cost-effective than the EDT (Option 2).