Question $34$

$1pts$

A Delaware bank has offered to set up a lock$-$box arrangement to process Union Oil Company of California's $($UNOCAL$)$ credit card payments from customers in $8$ mid$-$Atlantic states for an annual fee of $$150,000$ plus $$0\mathrm{.}05$ per payment. Total collections from this area are $$547\mathrm{.}5$ million annually$-$consisting of an average of $10$ payments per year from $1,100,000$ credit card customers. Average mailing time for customers from this region would be reduced from $3\mathrm{.}5$ days currently to $2$ days with the lock$-$box system. Check processing and clearing time also would be reduced from $5$ days presently to $1\mathrm{.}5$ days with the lock$-$box arrangement. Establishment of the lock$-$box system would reduce annual payment processing costs at its Los Angeles headquarters by $$250,000$ and reduce the compensating balance at its Los Angeles bank by $$500,000.$ The Delaware bank will not require UNOCAL to maintain a compensating balance if it establishes a lock$-$box system. Funds released by the lock$-$box arrangement can be invested elsewhere in the firm to earn $15\%$ per annum pretax. Determine the net pretax benefits to UNOCAL of establishing the lock$-$box system with the Delaware bank. $($Assume $365$ days per year in the calculations.$)$

$$675,000$

$$750,000$

$$500,000$

$$ $$450,000$