AKM Limited has annual credit sales of $20 million with an average collection period is three months. The company is considering factoring its’ A/R balances with a Rough Financing Limited at a 10% annual interest rate and 12% reserve requirement. Rough Financing charges factoring commission of 2.5%. Historically 97% of credit sales by AKM Limited are good sales and collectible. The credit administration department has a fixed operating cost $9000 per collection cycle, while the variable cost for collection and credit admin cost is 1.75% on credit sales. What is the annualized effective interest rate for AKM Limited?

Answer rating: 100% (QA)

Effective interest rate To calculate Credit Sales divided by Total Cost and t... View the full answer