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Problem:

No More Books Corporation has an agreement with Floyd whereby the bank handles $3.2 million in collections a day and requires a $260,000 compensating balance. No More Books is contemplating cancelling the agreement and dividing its eastern region so that two other banks will handle its business. Banks A and B will each handle $1.6 million of collections a day, and each requires a compensating balance of $110,000. No More Books 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: Show supporting computations in good form.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91171033

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