Question: Dalziel Publishing Company. Dalziel Publishing Company publishes books in Europe through separate subsidiaries in several countries. On a Europe-wide basis, Dalziel publishing experiences uneven cash flows. Any given book creates a cash outflow during the period of writing and publishing, followed by a cash inflow in subsequent months and years as the book is sold. To handle these imbalances, Dalziel decided to create an inhouse bank.
Assumptions Per Annum Monthly
Interest paid on deposits 4.800% 0.400%
Interest charged on advances 5.400% 0.450%
Spot exchange rate, euros/pound 1.6000
a. What would be the net interest earnings (i.e., interest earned less interest paid, before administrative expenses), of Dalziel's in-house bank for April?
b. If parent Dalziel Publishing subsidized the inhouse for all of its operating expenses, how much more could the in-house bank loan at the beginning of April?