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

question 89

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.

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Definitions:

Standard Deviation

A measure of the amount of variation or dispersion of a set of values, indicating how much the individual data points differ from the mean of the data.

Normally Distributed

Describes a symmetrical bell-shaped distribution of data points, where most of the data points cluster around a central peak and the probabilities for values farther from the mean taper off symmetrically in both directions.

Football Players

Individuals who participate in the sport of football, which involves competing to score goals against an opposing team.

Standard Deviation

A measure of the amount of variation or dispersion in a set of values, indicating how much individual values differ from the mean.