question archive You are the owner of a newly established firm and would want to decide what type of checking account to open
You are the owner of a newly established firm and would want to decide what type of checking account to open
Subject:FinancePrice:2.86 Bought11
You are the owner of a newly established firm and would want to decide what type of checking account to open. You plan to keep a P500 minimum balance in the account for emergencies and plans to write roughly 80 checks per month. The bank charges P10 per month and P0.10 per check charge for a standard business checking account with no minimum balance. You also have the option of a premium business balance that requires a P2,500 minimum balance but has no monthly fees or per check charges. If your cost of funds is 10%, which account should you choose?
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Alternative 1 : 500 minimum balance
Monthly charges = 10 + 80 checks x 0.10 = 18
Annual charges = 18 x 12 = 216
Alternative 2 : 2500 minimum balance
Extra balance to be maintained = 2500 - 500 = 2000
Now cost of funds = 10%
Annual charges = 2000 x 10% = 200
Alternative 2 has lower annual cost
ANSWER : ALTERNATIVE 2 : 2500 MINIMUM BALANCE
