Question
Wilson Inc. has annual sales of $600 million.Management has determined that an average of 10 days elapses between the time customers mail their payments and
Wilson Inc. has annual sales of $600 million.Management has determined that an average of 10 days elapses between the time customers mail their payments and when the funds are available to the firm.Second National Bank has a program whereby the float can be reduced by 4 days.The program would cost Wilson $300,000 in annual fixed fees to the bank, as well as a .05% fee on the annual volume of sales.Wilson will also be required to have a compensating balance of $3,000,000 at Second National Bank.Additionally, Wilson will be able to reduce labor costs in its accounting department by $200,000. Wilson can earn 12 percent (pretax) on its investments.
Show computations, which would indicate whether Wilson should accept Second National Bank's proposal.
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