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(Questions 6-7) The W Company, which can earn 4% on money market instruments, currently has a lockbox arrangement with a New Orleans bank for its

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(Questions 6-7) The W Company, which can earn 4% on money market instruments, currently has a lockbox arrangement with a New Orleans bank for its Southern customers. The bank handles $5 million a day in return for a compensating balance of $3 million. The W Company has discovered that it could divide the Southern region into a southwestern region (with $2 million a day in collections, which could be handled by a Dallas bank for a $2 million compensating balance) and a southeastern region (with $3 million a day in collections, which could be handled by an Atlanta bank by a $2.5 million compensating balance). In each case, collections would be one-half day quicker than with the New Orleans arrangement. What would be the annual savings (or cost) of dividing the Southern region? $100,000.00 $20,000.00 None of them $40,000.00 $60,000.00 $80,000.00

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