Question: A factor has agreed to lend the JVC Corporation working
A factor has agreed to lend the JVC Corporation working capital on the following terms: JVC’s receivables average $ 100,000 per month and have a 90- day average collection period. The factor will charge 12 percent interest on any advance (1 percent per month paid in advance) and a 2 percent processing fee on all receivables factored and will maintain a 20 percent reserve. If JVC undertakes the loan, it will reduce its own credit department expenses by $ 2,000 per month. What is the annual effective rate of interest to JVC on the factoring arrangement? Assume that the maximum advance is taken.
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