Donaghy Corporation was founded 20 years ago by its president, Jack Donaghy. 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 dispersion of the company's customers, it currently

employs a lockbox system with collection centres in Vancouver, Calgary, Toronto, and Montreal.

Liz Lemon, the company's treasurer, has been examining the current cash collection policies. On

average, each lockbox centre 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 centre

banks. Every two weeks, the investment accounts are swept; the proceeds are wire-transferred to

Donaghy's headquarters in Winnipeg to meet the company's payroll. The investment accounts each

earn .012% per day, and the wire transfers cost .20% of the amount transferred.

Liz has been approached by the Royal Canadian Bank about the possibility of setting up a concentration

banking system for Donaghy Corp. Royal Canadian will accept each of the lockbox centre's

daily payments via automated clearinghouse (ACH) transfers in lieu of wire transfers. The ACHtransferred

funds will not be available for use for one day. Once cleared, the funds will be deposited

in a short-term account, which will also yield .012% per day. Each ACH transfer will cost $150. Jack

has asked Liz to determine which cash management system will be the best for the company. Liz

has asked you, her assistant, to answer the following questions:

Under the terms outlined by the bank, should the company proceed with the concentration

banking system?