Answer (D) is correct . The annual benefit (loss) from using the bank’s proposed service is the excess (deficit) of interest earned on the early deposits over (under) the cost of the service. If the plan is adopted, the firm’s average cash balance will increase by $200,000 ($100,000 × 2 days). Benefit (loss) = Interest earned – Cost = ($200,000 × 6%) – ($500 × 12 months) = $12,000 – $6,000 = $6,000
Answer (A) is incorrect because This figure results from miscalculating the annual interest revenue.
Answer (B) is incorrect because This figure results from failing to subtract the annual service charge.
Answer (C) is incorrect because This figure results from figuring the interest earned for only 1?day, not 2.
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