Amazon's CFO is considering the fees charged by two banks at trying to determine which is best for her firm. First American charges a flat $0.11 per payment and First Western requires a minimum compensating balance of $500,000 plus $0.05 per payment. If Amazon's cost of funds is 8.50%, and the expected number of payments per year is 900,000, which bank should be chosen?

Question

Quizplus · Accepted Answer

Solution:
FW = 500,000(.085) + 900,000(.05) = $87,500
FA = 900,000(.11) = $99,000

Amazon's CFO Is Considering the Fees Charged by Two Banks