Mojo Corporation currently employs a lockbox system with collection centers in San Francisco, St. Louis, Atlanta, and Boston. Each lockbox center, on average, handles $150,000 in payments every day. Mojo’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 and the proceeds are wire-transferred to Mojo’s headquarters in Dallas to meet the company’s payroll. The investment accounts pay .015 percent per day, and wire transfers cost .15 percent of the amount transferred.

a. What is Mojo’s total net cash flow available from its lockbox system to meet the payroll?

b. Suppose Late Nite Bank, located just outside Dallas, offers to set up a concentration bank system for Mojo. Late Nite will accept each of the lockbox center’s daily payments via automated clearinghouse, ACH, transfers (in lieu of wire transfers) and deposit the funds in the same marketable securities investments yielding .015 percent per day. ACH-transferred funds are not available for use for one day. If the ACH transfers cost $700 each, should Mojo proceed with the concentration bank plan?

c. In part (b), at what cost of ACH transfers would Mojo be indifferent between the two systems?