Should Saban make the switch and why

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The Saban Corporation is trying to decide whether to switch to a bank that will accommodate electronic funds transfers from Saban's customers. Saban's financial manager believes the new system would decrease its collection float by as much as 5 days. The new bank would require a compensating balance of $25,000, whereas its present bank has no compensating balance requirement. Saban's average daily collections are $11,800, and it can earn 8.8% on its short-term investments.

Problem 1: Should Saban make the switch? (Assume the compensating balance at the new bank will be deposited in a? non-interest-earning account.)

Problem 2: As a result of using the electronic funds transfer system, the amount of collection float freed up is ?

Reference no: EM132973080

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