East Shore Inc. has an ACP of 60 days and daily credit sales of $75,000. A factor offers a 60-day accounts receivable loan equal to 90 percent of accounts receivable. The quoted interest rate is 10 percent and the commission fee is 1.5 percent of accounts receivable of the firm. As a result, the firm will save $3,000 and have a 1 percent reduction in bad debt losses, which are $500,000. What is the effective annual cost of the factor arrangement?
Answer to relevant QuestionsDescribe why financial and market intermediaries exist in our financial system.List the four areas of conflict of interest between shareholders and managers.ABC Inc. grants credit terms of net 25. It is considering a new policy that involves more stringent credit terms: net 20. As a result, the price of its product will stay the same at $45. The expected sales will decrease by ...a. Calculate the effective annual cost of forgoing the discount from credit terms of 2/15 net 40. The selling price is $600.b. Another supplier offers $620 on credit terms of net 60. If you could finance the purchase by ...Calculate the effective annual cost of a one-year $2-million operating line of credit. The firm borrowed $1.2 million for the first five months of the year and reduced the loan amount to $500,000 for the rest of the year. ...
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