9663

Major Manufacturing currently has one bank account located in NewYork to handle all of its collections. The firm keeps a compensating balance of $300,000 topay for these services (see Section 19.7). It is considering opening a bank account with WestCoast National Bank to speed up collections from its many California-based customers.Major estimates that the West Coast account would reduce collection time by 1 day on the$1 million a day of business that it does with its California-based customers. If it opens theaccount, it can reduce the compensating balance with its New York bank to $200,000 sinceit will do less business in New York. However, West Coast also will require a compensatingbalance of $200,000. Should Major open the new account?