Your banker has analyzed your company account and has suggested that her bank has a cash management package for you. She

suggests that with a concentration banking system, your float can be reduced by two days on average. You, of course, are delighted

$($you$\text{'}$re not sure why$),$ but you do know your average daily collections amount to $$340,000.$ Your opportunity cost of funds is $7$ percent.

The bank provides this service for $$56,000$ plus a compensating balance in your current account of $$78,500.($A compensating

balance is the amount you are required to maintain interest free at that bank.$)$

a$.$ Is this package worth it$?$

No

Yes

b$.$ By how much? $($Negative answer should be indicated by a minus sign.$)$

Annual Saving