2B5F THE ROLLING STONE CORPORATION, AN ENTERTAINMENT TICKETING SERVIC...

145.

CSO: 2B5b

LOS: 2B5f

The Rolling Stone Corporation, an entertainment ticketing service, is considering the

following means of speeding cash flow for the corporation.

•

Lock Box System. This would cost $25 per month for each of its 170 banks and

would result in interest savings of $5,240 per month.

•

Drafts. Drafts would be used to pay for ticket refunds based on 4,000 refunds per

month at a cost of $2.00 per draft, which would result in interest savings of $6,500

per month.

•

Bank Float. Bank float would be used for the $1,000,000 in checks written each

month. The bank would charge a 2% fee for this service, but the corporation will

earn $22,000 in interest on the float.

•

Electronic Transfer. Items over $25,000 would be electronically transferred; it is

estimated that 700 items of this type would be made each month at a cost of $18

each, which would result in increased interest earnings of $14,000 per month.

Which of these methods of speeding cash flow should Rolling Stone Corporation adopt?

a.

Lock box and electronic transfer only.

b.

Bank float and electronic transfer only.

c.

Lock box, drafts, and electronic transfer only.

d.

Lock box, bank float, and electronic transfer only.