BAM Corporation has annual sales of $800 million. Management has determined that an average of 6 days elapses between the time customers mail their payments and when the funds are available to the firm. Third City Bank has a program whereby the float can be reduced by 2 days. The program would cost BAM $300,000 in annual fixed fees to the bank, as well as a .1% fee on the annual volume of sales. BAM will also be required to have a compensating balance of $2,000,000 at Third City Bank. Additionally, BAM will be able to reduce labor costs in its accounting department by $150,000. BAM can earn 8 percent (pretax) on its investments.

Show computations which would indicate whether or not BAM should accept Third City Banks proposal.