Suppose the Eastern Gas & Power Company (EGPC) currently uses a centralized collection system that has all monthly customer payments remitted to its account at the Twelfth National Bank. For this service, EGPC pays a flat monthly service charge of $900. Last week, Ian Smith, EGPCs treasurer, received the following two offers to process the companys customer payments:

Proposal 1: This offer, from Utility Payment Processors Inc., proposes to process EGPCs monthly payments for a fee of $0.15 per payment and a monthly service charge of $125.

Proposal 2: This offer, from First Fidelity Bank, does not impose per-payment fees or monthly service charges; rather, it requires a compensating balance of $130,000 in an account maintained at the bank.

EGPC receives an average of 45,000 payments per year, and the company earns an average return of 7.50% on any available funds.

Help Ian Smith complete the following table by calculating the annual cost of each payment-processing proposal:

Payment-Processing SystemAnnual Cost
Current system	$10,800
Utility Payment Processors Inc.s system (Proposal 1)
First Fidelity Banks system (Proposal 2)

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

First Fidelity Bank is offering the best plan, which is expected to save approximately $1,050 per year compared with the cost of EGPCs current system.

First Fidelity Bank is offering the best plan, which is expected to save approximately $1,418 per year compared with the cost of EGPCs current system.

Utility Payment Processors Inc. is offering the best plan, which is expected to provide an annual savings of approximately $2,550 compared with the cost of EGPCs current system.