The present value of one credit card to the bank

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Reference no: EM13766229

First National Bank has a credit card department. The average cardholder charges $600 a month, and pays off the entire balance 60 days after the purchase. The cardholders do not pay any interest, but they do pay $25 membership fee, in advance, every year. The cost of capital to the bank is 6%. The bank collects 1% merchant fee on all sales. Find the following:

(A) The present value of one credit card to the bank.

(B) Decide if it is a profitable operation.

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Reference no: EM13766229

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