Company has an agreement with Sure Bank in which the bank handles P 5 million in collections a day and requires a P 200,000 compensating balance. Prosperous is thinking of canceling the agreement and dividing its western region so that two other banks will handle its business instead. Bank A will handle P 2 million a day of collections, requiring a compensating balance of P100,000, and bank B will handle the other P 3 million a day, asking for a compensating balance of P 300,000. Prosperous’s financial manager anticipates that collections will be accelerated by one-fourth day if the western region is divided. The company’s rate of return is 14 percent. How much is the Company's net benefit in implementing the new collection method?

Company has an agreement with Sure Bank in which the bank handles P 5 million in collections a day and requires a P 200,000 compensating balance. Prosperous is thinking of canceling the agreement and dividing its western region so that two other banks will handle its business instead. Bank A will handle P 2 million a day of collections, requiring a compensating balance of P100,000, and bank B will handle the other P 3 million a day, asking for a compensating balance of P 300,000. Prosperous’s financial manager anticipates that collections will be accelerated by one-fourth day if the western region is divided. The company’s rate of return is 14 percent. How much is the Company's net benefit in implementing the new collection method?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter17: The Management Of Cash And Marketable Securities

Section: Chapter Questions

Problem 10P

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