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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 5 days. The new bank would require a compensating balance of $31,000, whereas its present bank has no compensating balance requirement. Saban's average daily collections are $12,000, and it can earn 8% 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.) Should Saban make the switch?

Reference no: EM131180454

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