Based on calculations for each proposal, which recommendation and justification is best to give to Annie Pena?

 

Transcribed Image Text:

Suppose the Atherton Fuels Corporation (AFC) currently uses a centralized collection system that has all monthly customer payments remitted to its account at the Twelfth National Bank. For this service, AFC pays a flat monthly service charge of $750. Last week, Annie Pena, AFC's treasurer, received the following two offers to process the company's customer payments: Proposal 1: This offer, from Utility Payment Processors Inc., proposes to process AFC's monthly payments for a fee of $0.20 per payment and a monthly service charge of $200. Proposal 2: This offer, from Eleventh National Bank, does not impose per-payment fees or monthly service charges; rather, it requires a compensating balance of $100,000 in an account maintained at the bank. AFC receives an average of 55,000 payments per month, and the company earns an average return of 8.00% on any available funds. Help Annie Pena complete the following table by calculating the annual cost of each payment-processing proposal: Payment-Processing System-Annual Cost Current system Utility Payment Processors Inc.'s system (Proposal 1) Eleventh National Bank's system (Proposal 2) $9,000 Suppose the Atherton Fuels Corporation (AFC) currently uses a centralized collection system that has all monthly customer payments remitted to its account at the Twelfth National Bank. For this service, AFC pays a flat monthly service charge of $750. Last week, Annie Pena, AFC's treasurer, received the following two offers to process the company's customer payments: Proposal 1: This offer, from Utility Payment Processors Inc., proposes to process AFC's monthly payments for a fee of $0.20 per payment and a monthly service charge of $200. Proposal 2: This offer, from Eleventh National Bank, does not impose per-payment fees or monthly service charges; rather, it requires a compensating balance of $100,000 in an account maintained at the bank. AFC receives an average of 55,000 payments per month, and the company earns an average return of 8.00% on any available funds. Help Annie Pena complete the following table by calculating the annual cost of each payment-processing proposal: Payment-Processing System-Annual Cost Current system Utility Payment Processors Inc.'s system (Proposal 1) Eleventh National Bank's system (Proposal 2) $9,000

Answer rating: 100% (QA)

To calculate the annual cost of each paymentprocessing proposal we need to consider the costs associ... View the full answer