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 three days on average. You, of course, are delighted (you’re not sure why), but you do know your average daily collections amount to $305,000. Your opportunity cost of funds is 9 percent. The bank provides this service for $52,500 plus a compensating balance in your current account of $75,000. (A compensating balance is the amount you are required to maintain interest free at that bank.) Is this package worth it? If so, by how much?
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 three days on average. You, of course, are delighted (you’re not sure why), but you do know your average daily collections amount to $305,000. Your opportunity cost of funds is 9 percent. The bank provides this service for $52,500 plus a compensating balance in your current account of $75,000. (A compensating balance is the amount you are required to maintain interest free at that bank.) Is this package worth it? If so, by how much?
Advanced Engineering Mathematics
10th Edition
ISBN:9780470458365
Author:Erwin Kreyszig
Publisher:Erwin Kreyszig
Chapter2: Second-order Linear Odes
Section: Chapter Questions
Problem 1RQ
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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 three days on average. You, of course,
are delighted (you’re not sure why), but you do know your average daily collections
amount to $305,000. Your opportunity cost of funds is 9 percent. The bank
provides this service for $52,500 plus a compensating balance in your current
account of $75,000. (A compensating balance is the amount you are required to
maintain interest free at that bank.) Is this package worth it? If so, by how much?
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