10. NPV and Reducing Float No More Books Corporation has an agreement with Floyd Bank whereby the bank handles $5 million in collections per day and requires a $350,000 compensating balance. No More Books is contemplating cancel- ing the agreement and dividing its eastern region so that two other banks will handle its business. Banks A and B will each handle $2.5 million of collections per day, and each requires a compensating balance of $200,000. No More Books’ financial man- agement expects that collections will be accelerated by one day if the eastern region is divided. Should the company proceed with the new system? What will be the annual net savings? Assume that the T-bill rate is 2.5 percent annually.
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