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Zero Balance Account

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Carbide Corporation is examining its operating cash management. One of the options the firm is considering is a zero-balance account (ZBA). The firm's bank is offering a ZBA with monthly charges of $1,500, and the bank estimates that the firm can expect to earn 8% on its
short-term investments.

Determine the minimum average cash balance that would make this ZBA a benefit to the firm. Assume a 365-day year.

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Solution Summary

This solution provides assistance determining the minimum average cash balance that would make this ZBA a benefit to the firm.

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ZBA would benefit only if savings in interest offsets the monthly ...

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