Net cash flow available from the current lock box system

Reference no: EM131890132

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 lock box 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: EM131890132

Questions Cloud

Probability of randomly selecting a bead of a particular : A bag contains 25 wooden beads. The colors of the beads are red, blue, white, green, black, brown, and grey. The probability of randomly selecting a bead

Find the 90th percentile of the jalapeno length distribution : The lengths of mature jalapenos are normally distributed with a mean of 3 inches and a standard deviation of 1 inch.

Determine the projects npv : Your firm is contemplating the purchase of a new $570,000 computer-based order entry system.

Binomial probability distribution : Let X be the number of hits that Regina gets. As we know, the distribution of X is a binomial probability distribution. What is the number of trials (n).

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

Describe the importance of sample size : Briefly describe why this selected topic is significant and the importance of sample size related to your selected topic.

Determine the mean and standard deviation of x : Determine the mean and standard deviation of x. (Round the answer to two decimal places.)

What is the probability that a randomly selected resident : a) What is the probability that a randomly selected resident has neither pet? b) What is the probability that a randomly selected resident has a cat

How does the organization promote the use of technology : Choose an organization and discuss how it is using technology to lead employees. What forms of technology is this organization using to inform employees?

User Account

All Pages