Use the model in File C16 to work this problem. Refer back to Problem 16-13. a. Would
Question:
Use the model in File C16 to work this problem. Refer back to Problem 16-13.
a. Would it be to Cooley’s advantage to offer to pay the factor a commission of 2.5 percent if it would lower the interest rate to 10.5 percent annually?
b. Assume a commission of 2 percent and an interest rate of 12 percent. What would be the total cost of the factoring arrangement if Cooley’s funding needs rose to $650,000? Would the factoring arrangement be profitable under these circumstances?
In problem 16-13:
Cooley Industries needs an additional $500,000, which it plans to obtain through a factoring arrangement. The factor would purchase Cooley’s accounts receivable and advance the invoice amount, minus a 2 percent commission, on the invoices purchased each month. Cooley sells on terms of net 30 days. In addition, the factor charges a 12 percent annual interest rate on the total invoice amount, to be deducted in advance.
Accounts ReceivableAccounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that...
Step by Step Answer:
Essentials of Managerial Finance
ISBN: 978-0324422702
14th edition
Authors: Scott Besley, Eugene F. Brigham