Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Chapter 26, Problem 8P
Summary Introduction
To think critically: About whether S Corporation has to switch to a new bank.
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The Staal Corporation is trying to decide whether to switch to a bank that will accommodate electronic funds transfers from Staal's customers. Staal's financial manager believes the new system would decrease its collection float by as much as five days. The new bank would require a compensating balance of $2,000,000, whereas its present bank has no compensating balance requirement. Staal’s average daily collections are $800,000, and it can earn 8% on its short-term investments. Should Staal make the switch? (Assume the compensating balance at the new bank will be deposited in a non-interest earning account.)
The Berti Corporation is trying to decide whether to switch to a bank that will accommodate electronic funds transfers from Berti 's customers. Berti 's financial manager believes the new system would decrease its collection float by as much as five days. The new bank would require a compensating balance of $4,000,000, whereas its present bank has no compensating balance requirement. Additionally, the new bank will require a fixed annual fee of $200,000 each year to service the account. Berti 's average daily collections are $2,000,000, and it can earn 6% on its short-term investments. Should Berti make the switch? (Assume the compensating balance at the new bank will be deposited in a non-interest earning account.)
The Saban Corporation is trying to decide whether to switch to a bank that will accommodate electronic funds transfers from Saban's customers. Saban's financial manager believes the new system would decrease its collection float by as much as
6
days. The new bank would require a compensating balance of
$23,000,
whereas its present bank has no compensating balance requirement. Saban's average daily collections are
$10,200,
and it can earn
8.6%
on its short-term investments. Should Saban make the switch? (Assume the compensating balance at the new bank will be deposited in a non-interest-earning account.)
Chapter 26 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 26.1 - What is the firms cash cycle? How does it differ...Ch. 26.1 - How does working capital impact a firms value?Ch. 26.2 - Prob. 1CCCh. 26.2 - Prob. 2CCCh. 26.3 - Prob. 1CCCh. 26.3 - Prob. 2CCCh. 26.4 - What is accounts payable days outstanding?Ch. 26.4 - What are the costs of stretching accounts payable?Ch. 26.5 - What are the benefits and costs of holding...Ch. 26.5 - Prob. 2CC
Ch. 26.6 - Prob. 1CCCh. 26.6 - Prob. 2CCCh. 26 - Prob. 1PCh. 26 - Prob. 2PCh. 26 - Aberdeen Outboard Motors is contemplating building...Ch. 26 - Prob. 4PCh. 26 - Prob. 5PCh. 26 - Prob. 6PCh. 26 - The Fast Reader Company supplies bulletin board...Ch. 26 - Prob. 8PCh. 26 - Prob. 9PCh. 26 - Prob. 10PCh. 26 - The Mighty Power Tool Company has the following...Ch. 26 - What is meant by stretching the accounts payable?Ch. 26 - Prob. 13PCh. 26 - Your firm purchases goods from its supplier on...Ch. 26 - Use the financial statements supplied on the next...Ch. 26 - Prob. 16PCh. 26 - Which of the following short-term securities would...
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