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Cash Management at Richmond Corporation

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I need help answering the following 3 questions for the attached case.

1. What is Richmond Corporation's total net cash flow from the current lockbox system available 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?

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Solution Summary

Cash management at Richmond Corporation is examined. The total net cash flow from the current lockbox system available to meet payroll is determined. The cost of ACH transfers is examined.

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Richmond Corporation was founded 20 years ago by its president, Daniel Richmond. The company originally began as a mail-order company but has grown rapidly in recent years, in large part due to its Web site. Because of the wide geographical dispersion of the company's customers, it currently employees a lockbox system with collection centers in San Francisco, St. Louis, Atlanta and Boston.

Steve Dennis, the company's treasurer, has been examining the current cash collection policies. On average each lockbox center handles $130,000 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, and the proceeds are ...

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