Zero-balance account of Union Company
Zero-balance account Union Company is considering establishment of a zero-balance account. The firm currently maintains an average balance of $420,000 in its disbursement account. As compensation to the bank for maintaining the zero-balance account, the firm will have to pay a monthly fee of $1,000 and maintain a $300,000 non-interest-earning deposit in the bank. The firm currently has no other deposits in the bank. Evaluate the proposed zero-balance account, and make a recommendation to the firm, assuming that it has a 12% opportunity cost.