1. 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 $25,000?, whereas its present bank has no compensating balance requirement.? Saban's average daily collections are $9,000?, 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? ?
A. ?Yes, Saban would have an additional $20,000 to invest.
B. ?Yes, Saban would have an additional $45,000 to invest.
C. ?No, Saban's cash flows will decrease by the required balance of $25,000.
D. ?No, Saban's cash flows will increase by $9,000 but decrease by the required balance of $25,000.
2. Which one of the following statements is correct, all else held constant?
There is an inverse relationship between the present value and the future value.
The future value increases as the time period increases.
The interest rate is directly related to the present value.
The present value increases as the time period increases.