Question: Wonder Dog Leash Company is seeking to raise cash and

Wonder Dog Leash Company is seeking to raise cash and is in negotiation with Big Bucks finance company to pledge their receivables. BB is willing to loan funds against 75% of current (that is, not overdue) receivables at a 15% annual percentage rate (see the aging of receivables in problem 10). To pay for its evaluation of Wonder’s receivables, BB charges a 2.5 percent fee on the total balance of current receivables.
a. If the average term of a loan is 30 days, what is the effective interest rate if Wonder pledges its receivables?
b. What is the effective rate if Wonder negotiates a loan of 45 days with no other changes in the loan’s terms?

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  • CreatedMarch 27, 2015
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