GROUP 1

CASE 5
TANG NGOC ANH
LY TIEN DUNG
NGUYEN NGOC DUC
VU NGUYEN DUC THANG
PHAM NGUYEN DIEU MINH
LAI ANH THU
CASE OVERVIEW
Webb Corporation

Currently employs a lockbox system with collection centers in San Francisco, St. Louis, Atlanta, and
Boston.

On average, each lockbox center handles $175,000 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 proceeds are wire-transferred to Webb’s headquarters meet the company’s payroll.
The investment accounts each earn .012 percent per day, and the wire transfers cost .20 percent of the
amount transferred.

Holly has been approached by Third National Bank about the possibility of setting up a concentration
banking system for Webb Corp. Accept each of the lockbox center’s daily payments via (ACH) transfers in
lieu of wire transfers. 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.
Question 1
What is Webb Corporation’s total net cash flow available from the current lockbox system to meet
payroll?

Daily payment (1 lockbox) = $ 175,000 Interest rate = 0.012%/day

Transfer cost = 0.2 % of the amount transferred.

Cash in:
FV (1 lockbox, 14 days) = (14 x PV) x [1 + (i x n)] = ($ 175.000 x 14) x [1 + (0.012 x 14)]
= $ 2.450.000 x 1,168 = $2.861.600
Cash-out:
Tranfer fee = 0.2% x $ 2.861.600 = $ 5.722
Net cash flow of 1 lockbox = $ 2.861.600 - $ 5.722 = $ 2.855.278
Net cash flow of 4 lockbox = $ 2.855.278 x 4 = $ 11.421.112
Question 2
Under the terms outlined by Third National Bank, should the company proceed with the concentration
banking system?

Cash in:
FV (1 lockbox, 14 days) = (14 x PV) x [1 + (i x n)] = ($ 175.000 x 14) x [1 + (0.012 x 14)]
= $ 2.450.000 x 1,168 = $ 2.861.600
Cash out:
Tranfer fee from 1 lockbox = $ 150
Net cash flow of 1 lockbox = $ 2.861.600 - $ 500 = $ 2.860.500
Net cash flow of 4 lockbox = $ 2.860.500 x 4 = $ 11.442.000

➙ So, the company should have followed the advice of the Third National Bank because it had a higher net cash flow of $
20.888
Question 3
What cost of ACH transfers would make the company indifferent between the two systems?

Tranfer fee to be balanced =

= $ 11.442.000 - $ 11.421.1124 = $ 20.8884 = $ 5.222

➙The result of this cost is what makes the company indifferent between the two systems
Thank you!
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