Jimmy Chong Ltd. currently pays its employees on a weekly basis. The weekly wage bill is £600,000. This means that on average the firm has accrued wages payable of (£600,000 + £0)/2 = £300,000.

Jimmy Chong Jr. works as the firm’s senior financial analyst and reports directly to his father, who owns all the firm’s common stock. Chong Jr. wants to move to a monthly wage-payment system. Employees would be paid at the end of every fourth week. Chong Jr. is fully aware that the labor union representing the company’s workers will not permit the monthly payments system to take effect unless the workers are given some type of fringe benefit compensation. A plan has been worked out whereby the firm will contribute to the cost of life insurance coverage for each employee. This will cost the firm £45,000 annually. Chong Jr. expects the firm to earn 8 percent annually on its marketable-securities portfolio.

a. Based on the projected information, should Jimmy Chong Ltd move to a monthly wage-payment system?

b. What annual rate of return on the marketable-securities portfolio would enable the firm to just break even on this proposal?