The Jackson Supply Company Recently Started Using a Regional Lock-Box

Essay

The Jackson Supply Company recently started using a regional lock-box collection system.The controller for the company compared the float using the lock-box system with the float using the company's prior,one-location collection system.The controller found that the company was saving $2,600,000 in average float.The bank that provides the regional lock-box system requires that the company maintain a $500,000 compensating balance at all times.The bank also charges service fees of $120,000 annually.
Required: Calculate the percentage cost of net funds freed for Jackson Supply Company.