1. If a firm is receiving financing from a factor and the conditions are that the firm will receive 85% of the value of the accounts receivable now and another 11% 60 days later when the accounts receivables are collected, what is the simple interest rate on this transaction?

a. 4%.

b. 11%.

c. 28.2%.

d. 60%.

2. An entrepreneur is considering whether or not to invest in new equipment for their business. The expected rate of return on investing in the new equipment is 15.0%. If the entrepreneur can finance this investment by obtaining a loan from an SBA sponsored bank for 7.0% interest, should they purchase the equipment?

a. Definitely yes. The cost of obtaining the loan is less than the expected rate of return.

b. Definitely not.

c. Do not really know the answer. We need to know the entrepreneur's weighed cost of capital.

d. Never make an investment where the rate of return on the investment is more than the interest rate to acquire the funds.