A company is considering the factoring of its accounts receivable. The following details apply to this company:
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Question:
A company is considering the factoring of its accounts receivable. The following details apply to this company:
- Credit sales amounts to $5 million per annum.
- Average collection period is 75 days.
The factor quoted the company as follows:
- A service facility charge of 0.5% on credit sales.
- A finance facility charge of 11.5% per annum on outstanding accounts receivable.
- An interest rebate of 10% on retention amounts to be held.
- Retention of 20% of outstanding accounts receivable by the factor.
It is estimated that cost savings of $ 39,000 would result from the factor administering the accounts receivable.
Calculate the value of the retention rebate that will be applicable. Show your workings and answer in the space provided below.
Related Book For
Business Statistics
ISBN: 978-0321925831
3rd edition
Authors: Norean Sharpe, Richard Veaux, Paul Velleman
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