Question

No More Books Corporation has an agreement with Floyd Bank whereby the bank handles $4.5 million in collections per day and requires a $340,000 compensating balance. No More Books is contemplating canceling the agreement and dividing its eastern region so that two other banks will handle its business. Banks A and B will each handle $2.25 million of collections per day, and each requires a compensating balance of $195,000. No More Books’s financial management expects that collections will be accelerated by one day if the eastern region is divided.

 

a.	What is the NPV of accepting the system? (Do not round intermediate calculations.)
b.	What will be the annual net savings? Assume that the T-bill rate is 2.5 percent annually. (Do not round intermediate calculations.)

Please show the equations.  That is how I learn, by seeing where the numbers go, I can work them out myself.  Thank you very much for your time!  Have a wonderful day!

Answer 1

See Excel for work.

a) $4,450,000

b) $111,250