Available from the current lockbox system to meet payroll

Assignment Help Financial Management

Reference no: EM132016146

Webb Corporation was founded 20 years ago by its president, Bryan Webb. The company originally began as a mail-order company, but has grown rapidly in recent years, in large part due to its website. Because of the wide geographical disper- sion of the company’s customers, it currently employs a lock- box system with collection centers in San Francisco, St. Louis, Atlanta, and Boston. Holly Lennon, the company’s treasurer, has been exam- ining the current cash collection policies. On average, each lockbox center handles $193,000 in payments each day. The company’s current policy is to invest these payments in short- term marketable securities daily at the collection center banks. Every two weeks, the investment accounts are swept; the pro- ceeds are wire-transferred to Webb’s headquarters in Dallas to meet the company’s payroll. The investment accounts each earn .012 percent per day, and the wire transfers cost .20 per- cent of the amount transferred. Holly has been approached by Third National Bank, lo- cated just outside Dallas, about the possibility of setting up a concentration banking system for Webb Corp. Third National will accept each of the lockbox center’s daily payments via automated clearinghouse (ACH) transfers in lieu of wire trans- fers. The ACH-transferred funds will not be available for use for one day. Once cleared, the funds will be deposited in a short-term account, which will yield .012 percent per day. Each ACH transfer will cost $150. Bryan has asked Holly to determine which cash management system will be the best for the company. As her assistant, Holly has asked you to answer the following questions.

QUESTIONS

1. What is Webb Corporation’s total net cash flow available from the current lockbox system to meet payroll?

2. Under the terms outlined by Third National Bank, should the company proceed with the concentration banking system?

3. What cost of ACH transfers would make the company indifferent between the two systems?

Reference no: EM132016146

Questions Cloud

What motivates people to work harder : "In your experience, what motivates people to work harder -- communications that promise increased salary or communications that recognize performance?"

Is the leader responsible for implementing strategies : The issues of burnout and compassion fatigue can undermine the effectiveness of even the most effective healthcare clinician.

What makes a high-quality source : What makes a high-quality source? Share a resource you intend to use in your informative speech. Laughter is the best medicine.

How would cramming effect retrieval : How would cramming effect retrieval? What is one technique that each friend could use to help improve memory and prepare for the exam?

Available from the current lockbox system to meet payroll : What is Webb Corporation’s total net cash flow available from the current lockbox system to meet payroll?

What is variance-standard deviation-coefficient of variation : What is the variance, standard deviation, and coefficient of variation? Please show work.

What you thoughts regard to connecticut allowing gambling : A related motivation is keeping harmed individuals from later becoming dependent upon state support. What you thoughts with regard Connecticut allowing gambling

How your plan aligns with ethical guidelines of psychology : Action Plan: In this part of your assessment, you will develop your action plan, describing the overall plan that addresses the problem.

Rate for four-year-maturity treasury securities : what is the current (long-term) rate for four-year-maturity Treasury securities?

User Account

All Pages