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A company enters into an agreement with a firm who will factor the company's accounts receivable. The factor agrees to buy the company's receivables, which average $100,000 per month and have an average collection period of 30 days. The factor will advance up to 80 percent of the face value of receivables at an annual rate of 10 percent and charge a fee of 2 percent on all receivables purchased. The controller of the company estimates that the company would save $18,000 in collection expenses over the year.
Fees and interest are not deducted in advance. Assuming a 360-day year, what is the annual cost of financing?
Suggested Answer: D
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Choice 'd' is correct. 17.5% annual cost of financing.
9 comments · newest first
PE
Peggie
11 months ago
So, is the total cost really 16%? Sounds right to me.
AD
Adolph
12 months ago
Totally makes sense, those costs add up!
AL
Alex
12 months ago
Wait, are we sure about those fees? Seems high.
AL
Alana
12 months ago
10% interest on $80k is $8,000 annually.
RO
Robt
1 year ago
The factor advances 80% of $100,000, that's $80,000.
MA
Margarett
1 year ago
Hmm, this is a good one. I think the key is understanding when test planning should happen - is it just at the beginning, or throughout the lifecycle? Let me think this through.
JA
Jaclyn
1 year ago
I'm a bit unsure about this one. I'll need to think it through and make sure I understand the context before answering.
WH
Whitley
1 year ago
If I recall correctly, objects are definitely part of a content model, but I'm blanking on the second element.
DU
Dusti
1 year ago
Eavesdropping is definitely the biggest risk with wireless networks. The signals are broadcast through the air, so it's easy for someone to intercept them. I'm confident that C is the correct answer.