Question
The Company, which can earn 12% on Capital market instruments, currently has a lockbox arrangement with a Suburb bank for its Southern customers. The bank
The Company, which can earn 12% on Capital market instruments, currently has a lockbox arrangement with a Suburb bank for its Southern customers. The bank handles Rs 6,000,000 a day in return for a compensating balance of Rs 4,000,000. The Company has discovered that it could divide the Southern region into a southerner region (with Rs 2,000,000 a day in collections, which could be handled by a Rout bank for a Rs 2,000,000 compensating balance) and a southwestern region (with Rs 4,000,000 a day in collections, which could be handled by an Sroup bank by a Rs 4,000,000 compensating balance). In each case, collections would be one-half day quicker than with the Suburb arrangement. a) On the basis of net annual benefit / (or cost) suggest the company for being with Suburb or they must divide customers on south east & south west basis for business cash management by Rout & Sroup Banks. b) The Suburb bank has offered to handle the collections strictly on a fee basis (no compensating balance) & the company forced to retain relationship with Suburb than suggest the maximum fee affordability of the company
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started