Never Again Enterprises has an agreement with The Worth Bank whereby the bank handles $3.12 million in collections a day and requires a $1,000,000 compensating balance. Never Again is contemplating canceling the agreement and dividing its eastern region so that two other banks will handle its business.
Banks A and B will each handle $1.56 million of collections a day, and each requires a compensating balance of $1,550,000.
Never Again's financial management expects that collections will be accelerated by one day if the eastern region is divided.
The T-bill rate is 4 percent annually. What is the amount of the annual net savings if this plan is adopted?