Gold Star Laundry and Drycleaners, Inc. Case

Memo

To: Mr. Kenneth Moon

Date: 3/15/2012

Re: Gold Star Laundry and Drycleaners, Inc.

Historically, the controllers of Gold Star have relied on Depository Transfer Checks (DTC) as our method of transfer because of its relatively inexpensive cost and once a week transfer schedule. Due to the location of our 50 outlets in 4 different states, each outlet has a relationship with a different bank. The significance of these relationships with different banks means that there are excess funds in the accounts at these banks. After careful review of our company's existing cash management system we have determined that the use of Automated Clearing House (ACH) transactions, in comparison to wire and DTC methods, it is the most cost-efficient method for transferring funds. The use of ACH will require Gold Star to have a minimum transfer size of -$46,639 (As shown in Exhibit B). In comparison, the wire transfer versus DTC & wire versus ACH methods require minimum transfer sizes of $375,134 and $796,916 as shown in Exhibit B. Therefore, the ACH method enables us to transfer the least amount of money and takes into account the combination of cost and timing that is required of ACH transactions.

In order to obtain the maximum benefit of the ACH method we need to initiate deposit transfers three times each week. These transfers should be initiated on Monday, Wednesday and Thursday on any given week as shown in Exhibit B. We chose to transfer on Monday because the $25,000 in deposits is larger than the minimum transfer size of $14,194 for one day accelerated as shown in Exhibit B.

On Tuesday the deposit amount of $8,000 does not exceed the minimum transfer size of $14,194 for one day accelerated as shown in Exhibit B. Therefore, our choice to not initiate a transfer on Tuesday is because the cost of initiating it exceeds the benefit that receiving the deposit one day earlier provides. I chose Wednesday as the day to initiate transfers because in addition to Wednesday's deposits, the carryover amount of $8,000 from Tuesday resulted in $17,000 in total deposits for Tuesday and Wednesday. This $17,000 in total deposits for exceeds minimum transfer size of $14,194 for one day accelerated as shown in Exhibit B. Finally, we chose to initiate a transfer on Thursday because we exceeded the minimum transfer size of $4,731 for three days accelerated. The use of three days accelerated versus a one day accelerated is because the initiation of a transfer on Thursday means that the money would clear on Friday. The ability to have the funds on Friday means that we can invest them and earn three days of interest on them. Compare this to a transfer initiated on Friday, the next best option, which results in the receipt of funds four days later, on Monday. During this four day period these funds are not able