Profin San Bhd (Profin) sells construction equipment to contractors on net 60 areedit terms. The monthly sales average is RM300 000. The credit provided is for two months period (60 days). The value of accounts receivable average is RM500,01010. Profin pledges all its accounts recaivable to a bank. The bank advances 80% of the face value. 

Commission charge is at 3% per annum based on the advance amount. 1% processing fee per annum is charged based on the firm's average monthly sales. Profit borrows at a rate of 10% interest annually and it borrows at the maximum amount. 

Required: 

1) Determine the annual effective cost of the credit.

Answer rating: 100% (QA)

To determine the annual effective cost of the credit we need to calculate the total cost of borrowin... View the full answer