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Question
Modern Textiles, Inc. is considering factoring its receivables. The firm has annual sales of $109.5 million. Its average collection period is 73 days. Bad-debt losses average 2% of sales and credit department costs are $360,000 per year. Both of these costs would be eliminated if Modern Textiles factors its receivables. The factor will charge a fee of 3.5% on all receivables it purchases from the company. The factor will advance up to 80% of the value of the receivables at an annual interest rate of 12%. Interest is deducted from the amount of the advance. Determine the annual financing cost to Modern Textiles of factoring its receivables and borrowing under this arrangement. Assume 365 days in any calculations.a. 22.3%
b. 20.1%
c. 13.5%
d. cannot be determined from the information provided
Answer
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Related questions
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Q:
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Q:
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Q:
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Q:
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Q:
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Q:
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Q:
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Q:
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Q:
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Q:
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Q:
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b. relevant information is readily available for individuals and is costless to obtain
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d. All of these answers are correct.
Q:
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b. the value of the firm is independent of its capital structure in perfect capital markets with no income taxes
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Q:
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Q:
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a. $0.71
b. $3.49
c. $4.03
d. $3.33