Assume That ABC Bank Produces Product a for a Corporate

Multiple Choice

Assume that ABC Bank produces product A for a corporate client, while XYZ Bank produces product B for the client. The total operating cost for producing product A is $200 000 and $300 000 for product B. The resulting business volumes for the FI are $7 500 000 for product A and $10 000 000 for product B. Further assume that if the two banks merged they would be able to achieve $50 000 in cost efficiencies. What is the average cost of producing products A and B if the two institutions merged (round to two decimals) ?

A) 3.14 per cent
B) 5.08 per cent
C) 5.67 per cent
D) 2.57 per cent