Problem:
Cookie Cutters Corporation has an agreement with Floyd Bank whereby the bank handles $4.6 million in collections a day and requires a $330,000 compensating balance. Cookie Cutters 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 $2.3 million of collections a day, and each requires a compensating balance of $180,000. Cookie Cutters' financial management expects that collections will be accelerated by one day if the eastern region is divided.
Required:
Question 1: What is the NPV of accepting the system?
Question 2: Assume that the T-bill rate is 2.5 percent annually. What will be the annual net savings?
Note: Please provide full description.