Question
The Saban Corporation is trying to decide whether to switch to a bank that will accommodate electronic funds transfers fromSaban's customers.Saban's financial manager believes the
The Saban Corporation is trying to decide whether to switch to a bank that will accommodate electronic funds transfers fromSaban's customers.Saban's financial manager believes the new system would decrease its collection float by as much as 7 days. The new bank would require a compensating balance of $28,000, whereas its present bank has no compensating balance requirement.Saban's average daily collections are $10,600,and it can earn 8.4% on itsshort-term investments. Should Saban make theswitch? (Assume the compensating balance at the new bank will be deposited in anon-interest-earning account.)
As a result of using the electronic funds transfersystem, the amount of collection float freed up is ....? (Round to the nearestdollar.)
The amount that is immediately available to Saban Corporation is...? (Round to the nearestdollar.)
Saban should:
a. switch banks
b. not switch banks
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