MINICASE Cash Management at Webb Corporation Webb Corporation was founded 20 years ago by its president, Bryan Webb. The company origi- nally 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 cur- rently employs a lock-box system with collec- tion centers in San Francisco, St. Louis, Atlanta, and Boston.

Holly Lennon, the company's treasurer, has been examining the current cash collection policies. On average, each lockbox center handles $ 207,000 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 proceeds are wire-transferred to Webb's headquarters in Dallas to meet the company's payroll. The investment accounts each earn .013 percent perday, and the wire transfers cost .20 percent of the amount transferred.

Holly has been approached by Third National Bank, located 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 transfers. 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 .013 percent per day. Each ACH transfer will cost $175. Bryan has asked Holly to deter- mine which cash management system will be the best for the company. As her assistant, Holly has asked you to answer the following 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?