A mathematical solution to assessing banking decisions
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Please help with the following finance problem.
Major Manufacturing currently has one bank account located in New York to handle all of its collections. The firm keeps a compensating balance of $300,000 to pay for these services (see Section 19.7). It is considering opening a bank account with West Coast National Bank to speed up collections from its many California-based customers. Major estimates that the West Coast account would reduce collection time by 1 day on the $1 million a day of business that it does with its California-based customers. If it opens the account, it can reduce the compensating balance with its New York bank to $200,000 since it will do less business in New York. However, West Coast also will require a compensating balance of $200,000. Should Major open the new account?
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Solution Summary
This solution shows how to figure out if it makes sense to open up different bank accounts based on information given.
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Okay, this looks like a mathematical analysis. It appears that it will cost you $100,000 in ...
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