No More Books Corporation has an agreement with Floyd Bank whereby the bank hand

Question

No More Books Corporation has an agreement with Floyd Bank whereby the bank handles $5.4 million in collections a day and requires a $370,000 compensating balance. No More Books is contemplating canceling the agreement and dividing its eastern region so that two other banks will handle its business. Banks A and B will each handle $2.7 million of collections a day, and each requires a compensating balance of $220,000. No More Books

No More Books Corporation has an agreement with Floyd Bank whereby the bank handles $5.4 million in collections a day and requires a $370,000 compensating balance. No More Books is contemplating canceling the agreement and dividing its eastern region so that two other banks will handle its business. Banks A and B will each handle $2.7 million of collections a day, and each requires a compensating balance of $220,000. No More Books

Explanation / Answer

NPV = $370,000 ( $370,000-$440,000)

net savings = NPV (.24)

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