Ralph Taylor, a nationwide department store chain, currently processes all of its credit sales payments at its St$.$ Louis headquarters. The firm is considering the establishment of a lockbox arrangement with a Los Angeles bank to process payments from its customers in $10$ western states.

With the lockbox system, average mailing time for customers from this region would be reduced from $4$ days to $1$ day. Check$-$clearing time would also be reduced from $4$ days to $1$ day. Annual collections from the western region are $$285$ million. Establishment of this lockbox system would reduce the compensating balance requirement at the firm's St$.$ Louis bank by $$350,000$ and reduce annual payment processing costs at the St$.$ Louis office by $$75,000.$ Funds released by the lockbox arrangement can be invested elsewhere in the firm to earn $5\%$ before taxes. The Los Angeles bank has agreed to process Ralph Taylor's customer payments for an annual fee of $$185,000.$

What are the annual net pretax benefits to Ralph Taylor of establishing a lockbox system with the Los Angeles bank? $($Assume $365$ days per year.$)$

Question $14$Answer

a$.$

$$426,712\mathrm{.}33$

b$.$

$$391,369\mathrm{.}86$

c$.$

$$240,547\mathrm{.}95$

d$.$

$$474,246\mathrm{.}58$