Capital Financial Corporation will lend 90 percent against account balances that have averaged 30 days or less;

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Question:

Capital Financial Corporation will lend 90 percent against account balances that have averaged 30 days or less; 80 percent for account balances between 31 and 40 days; and 70 percent for account balances between 41 and 45 days. Customers that take over 45 days to pay their bills are not considered acceptable accounts for a loan.
Problem 8-27 Accounts receivable financing [LO8-1] Charming Paper Company sells to the 12 accounts listed here Average Age of the Account Over the Last Year Receivable Balance Account Outstanding $ 60,800 168,000 78,300 24,300 58,900 238,000 30,400 374,000 41,400 96,500 292,000 67,700 43 19 42 39 16 32 17 37

The current prime rate is 15.5 percent, and Capital charges 4.5 percent over prime to Charming as its annual loan rate.

a. Determine the maximum loan for which Charming Paper Company could qualify.

b. Determine how much one month’s interest expense would be on the loan balance determined in part a. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)