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No More Books Corporation has an agreement with Floyd Bank whereby the bank handles $4.4 million in collections a day and requires a $320,000 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 $2.2 million of collections a day, and each requires a compensating balance of $170,000. No More Books%u2019 financial management expects that collections will be accelerated by one day if the eastern region is divided.

Required:

Question 1: What is the NPV of accepting the system?

Question 2: What will be the annual net savings? Assume that the T-bill rate is 2.6 percent annually.

Note: Explain all calculation and formulas.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91170913

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