Float Management. Knob, Inc., is a nationwide distributor of furniture hardware. The company now uses a central billing system for credit sales of $182.5 million annually. First National, Knob’s principal bank, offers to establish a new concentration banking system for a flat fee of $100,000 per year. The bank estimates that mailing and collection time can be reduced by 3 days.

a. By how much will Knob’s availability float be reduced under the new system?

b. How much extra interest income will the new system generate if the extra funds are used to reduce borrowing under Knob’s line of credit with First National? Assume the interest rate is 12 percent.

c. Finally, should Knob accept First National’s offer if collection costs under the old system are $40,000 per year?