Question
Sampson Corporation has an agreement with Third National Bank whereby the bank handles $10 million in collections a day and requires a $1,000,000 compensating balance.Sampson
Sampson Corporation has an agreement with Third National Bank whereby the bank handles $10 million in collections a day and requires a $1,000,000 compensating balance.Sampson 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 $5 million of collections a day, and each requires a compensating balance of $600,000.Sampsons financial management expects that collections will be accelerated by two days if the eastern region is divided.Sampsons pre-tax opportunity cost is 10 percent.Should Sampson adopt the new system?Show computations.
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