Your banker has analyzed your company account and has suggested that her bank has a cash management package for you. She suggests that with a concentration banking system, your float can be reduced by four days on average. You, of course, are delighted (you're not sure why), but you do know your average daily collections amount to $390,000. Your opportunity cost of funds is 8 percent. The bank provides this service for $61,000 plus a compensating balance in your current account of $83,500. (A compensating balance is the amount you are required to maintain interest free at that bank.) a. Is this package worth it? O Yes O No b. By how much? (Negative answer should be indicated by a minus sign.) Annual Saving

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
Section: Chapter Questions
Problem 1PS
icon
Related questions
icon
Concept explainers
Question

Question a

Full explain this question and text typing work only     
We should answer our question within 2 hours takes more time then we will reduce Rating Dont ignore this line

Your banker has analyzed your company account and has suggested that her bank has a cash management package for you. She
suggests that with a concentration banking system, your float can be reduced by four days on average. You, of course, are delighted
(you're not sure why), but you do know your average daily collections amount to $390,000, Your opportunity cost of funds is 8 percent.
The bank provides this service for $61,000 plus a compensating balance in your current account of $83,500. (A compensating balance
is the amount you are required to maintain interest free at that bank.)
a. Is this package worth it?
O Yes
O No
b. By how much? (Negative answer should be indicated by a minus sign.)
Annual Saving
Transcribed Image Text:Your banker has analyzed your company account and has suggested that her bank has a cash management package for you. She suggests that with a concentration banking system, your float can be reduced by four days on average. You, of course, are delighted (you're not sure why), but you do know your average daily collections amount to $390,000, Your opportunity cost of funds is 8 percent. The bank provides this service for $61,000 plus a compensating balance in your current account of $83,500. (A compensating balance is the amount you are required to maintain interest free at that bank.) a. Is this package worth it? O Yes O No b. By how much? (Negative answer should be indicated by a minus sign.) Annual Saving
Expert Solution
steps

Step by step

Solved in 4 steps with 4 images

Blurred answer
Knowledge Booster
Receivables Management
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education