Amed Corp has annual sales of $400,000 and an average collection period of 38 days. A factoring
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Amed Corp has annual sales of $400,000 and an average collection period of 38 days.
A factoring company is offering a 38-day receivables loan equal to 80% of the accounts receivable at 8% interest along with a commission fee of 0.8% of the receivables. The firm estimates that by taking the offer, it could save $200 in collection costs and 0.75% in bad debt costs, as a percentage of sales.
What is the effective annual cost (in percent) of the arrangement to Amed Corp?
Related Book For
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
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