Union Company is considering establishment of a​ zero-balance account. The firm currently maintains an average balance of $418,000 in its disbursement account. As compensation to the bank for maintaining the​ zero-balance account, the firm will have to pay a monthly fee of $1,110 and maintain a $298,000 ​non-interest-earning deposit in the bank. The firm currently has no other deposits in the bank. Evaluate the proposed​ zero-balance account, and make a recommendation to the​ firm, assuming that it has an opportunity cost of 12.6%. The current opportunity cost is $ ?. (round to the nearest dollar.)

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Union Company is considering establishment of a​ zero-balance account. The firm currently maintains an average balance of $418,000 in its disbursement account. As compensation to the bank for maintaining the​ zero-balance account, the firm will have to pay a monthly fee of $1,110 and maintain a $298,000 ​non-interest-earning deposit in the bank. The firm currently has no other deposits in the bank. Evaluate the proposed​ zero-balance account, and make a recommendation to the​ firm, assuming that it has an opportunity cost of 12.6%.

The current opportunity cost is $ ?. (round to the nearest dollar.)

Expert Solution
Step 1: Define opportunity cost

When deciding between two or more options, a person or corporation should take into account both the advantages of the option they ultimately chose as well as the advantages of the alternatives they rejected. The opportunity cost is the value of the next best option people forego while choosing.

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