For many years, the City of Blandford has conducted business with a local banking institution. When the bank's financial advisor left the bank for another job, the City of Blandford saw this as an opportunity to re-evaluate its banking relationship. Given the City of Blandford's strong financial position, the organization decided to take bids for its banking needs. As a result of the bidding process, the City of Blandford was pleased to have received three bids for consideration. The following information is needed with this analysis:

City of Blandford's Banking Requirements:

Chequing accounts needed: 6

Cheques per month:* 2,000

Foreign debits/credits on chequing accounts per month: 200

Deposits per month:* 300

Returned cheques:* 25 per month

Credit card charges per month: 4,000

Wire transfers per month: 100, of which 60 are to foreign bank accounts

Monthly credit needs (line of credit availability and cost): $100,000 average monthly usage

Internet banking services?

Knowledgeable loan officer?

Responsiveness of bank?

Ray Bank Bid:

Chequing accounts: $5 monthly maintenance fee per account, $0.10 foreign debit/credit, $0.50 earned for each deposit, $3 per returned cheque

Credit card fees: $0.50 per item Wire transfers: $15 to domestic bank accounts, $50 to foreign bank accounts

Line of credit: Yes, this amount is available, interest charged at prime (4 percent) plus 2 percent, subject to a 6 percent minimum interest rate

Internet banking services? Yes, full online banking available: $15 one-time setup fee for each account, $20 monthly fee for software module

The financial advisor assigned to the potential City of Blandford account had 10 years of experience with medium to large business banking and showed an understanding of the needs of municipal governments.

Calcam Bank Bid:

Chequing accounts: No fees for the accounts, and no credits earned on deposits; $2.00 per returned cheque

Credit card fees: $0.50 per item, $7 per batch processed. Only manual processing was available, and the City of Blandford estimated 20 batches per month

Wire transfers: $30 per wire transfer

Line of credit: Yes, this amount is available, interest charged at prime (4 percent) plus 2 percent, subject to a 7 percent minimum interest rate

Internet banking services? Not currently, but within the next six months

The financial advisor assigned to the potential City of Blandford account had four years of experience with medium to large business banking, none of which pertained to municipal governments.

Pestorn Bank Bid:

Chequing accounts: $5 monthly maintenance fee per account to be waived for the City of Blandford, $0.20 foreign debit/credit, $0.30 earned for each deposit, $3.80 per returned cheque

Credit card fees: $0.50 per item Wire transfers: $10 to domestic bank accounts, $55 to foreign bank accounts

Line of credit: Yes, this amount is available, interest charged at prime (4 percent) plus 2 percent, subject to a 6.5 percent minimum interest rate

Internet banking services? Yes, full online banking available, one-time setup fee for each account waived for the City of Blandford, $20 monthly fee for software module

The financial advisor assigned to the potential City of Blandford account had two years of experience with large business banking. Another branch of the bank had expertise in dealings with municipal governments and would be willing to help as needed. This bank was the first one to submit a bid.

Required:

1. Calculate the predicted monthly cost of banking with each bank.

2. Suppose the City of Blandford felt that full online Internet banking was critical. How would that affect your analysis from Requirement 1? How would you incorporate the subjective factors (e.g., experience, access to expertise)?