Major Manufacturing currently has one bank account located in New York to handle all of its collections. The firm keeps an additional cash balance with the bank of $300,000 to pay for these services. It is considering opening a bank account with West Coast 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 the account, it can reduce the balance with its New York bank to $200,000 since it will do less business in New York. However, West Coast also will require additional cash balances of $200,000. Should Major open the new account?

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Additional cash balance Reduction in collection time Collection float Balance in New York bank after opening the acc $ 200,000.00 Additional cash balance required in West Coast S 200,000.00 S 300,000.00 1.00 day $1,000,000.00