(Cost of factoring) MDM Inc. is considering factoring its receivables. The firm has credit salos of $300,000 per month and has an average receivables balance of $600,000 with 60-day credit terms. The factor has offered to extend credit equal to 89 percent of the receivables factored less interest on the loan at a rate of 1.3 percent per month. The 11 percent difference in the advance and the face value of all receivables factored consists of a 2 percent factoring foe plus a 9 percent reserve, which the factor maintains. In addition, if MDM Inc. decides to factor its receivables, it will sell them all, so that it can reduce its credit department costs by $1,200 a month. a. What is the cost of borrowing the maximum amount of credit available to MDM Inc. through the factoring agreement? Note: Assume a 30-day month and 360-day year. b. What considerations other than cost should MDM Inc, account for in determining whether to enter the factoring agreement? The cost of borrowing the maximum amount of credit available to MDM Inc. through the factoring agreement is%. (Round to two decimal places.) b. What considerations other than cost should MDM Inc. account for in determining whether to enter the factoring agreement? (Select the best answer below.) O A. Of particular concern here is the presence of any government restrictions associated with factoring. In some industries, factoring simply is not used unless the firm's financial condition meets government guidelines. O B. Of particular concem here is the presence of any "stigma" associated with factoring. In some industries, factoring simply is not used unless the firm's financial condition is critical. OC. Of particular concern here is the presence of any "stigma" associated with factoring. In some industries, factoring is always used, no matter the firm's financial condition. O D. Of particular concern here is the presence of any "proferred status" associated with factoring. In some industries, factoring simply is not used unless the firm's financial condition is credit worthy.
(Cost of factoring) MDM Inc. is considering factoring its receivables. The firm has credit salos of $300,000 per month and has an average receivables balance of $600,000 with 60-day credit terms. The factor has offered to extend credit equal to 89 percent of the receivables factored less interest on the loan at a rate of 1.3 percent per month. The 11 percent difference in the advance and the face value of all receivables factored consists of a 2 percent factoring foe plus a 9 percent reserve, which the factor maintains. In addition, if MDM Inc. decides to factor its receivables, it will sell them all, so that it can reduce its credit department costs by $1,200 a month. a. What is the cost of borrowing the maximum amount of credit available to MDM Inc. through the factoring agreement? Note: Assume a 30-day month and 360-day year. b. What considerations other than cost should MDM Inc, account for in determining whether to enter the factoring agreement? The cost of borrowing the maximum amount of credit available to MDM Inc. through the factoring agreement is%. (Round to two decimal places.) b. What considerations other than cost should MDM Inc. account for in determining whether to enter the factoring agreement? (Select the best answer below.) O A. Of particular concern here is the presence of any government restrictions associated with factoring. In some industries, factoring simply is not used unless the firm's financial condition meets government guidelines. O B. Of particular concem here is the presence of any "stigma" associated with factoring. In some industries, factoring simply is not used unless the firm's financial condition is critical. OC. Of particular concern here is the presence of any "stigma" associated with factoring. In some industries, factoring is always used, no matter the firm's financial condition. O D. Of particular concern here is the presence of any "proferred status" associated with factoring. In some industries, factoring simply is not used unless the firm's financial condition is credit worthy.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:(Cost of factoring) MDM Inc. is considering factoring its receivables. The firm has credit sales of $300,000 per month and has an average
receivables balance of $600,000 with 60-day credit terms.
The factor has offered to extend credit equal to 89 percent of the receivables factored less interest on the loan at a rate of 1.3 percent per month.
The 11 percent difference in the advance and the face value of all receivables factored consists of a 2 percent factoring fee plus a 9 percent
reserve, which the factor maintains. In addition, if MDM Inc. decides to factor its receivables, it will sell them all, so that it can reduce its credit
department costs by $1,200 a month.
a. What is the cost of borrowing the maximum amount of credit available to MDM Inc. through the factoring agreement? Note: Assume a 30-day
month and 360-day year.
b. What considerations other than cost should MDM Inc. account for in determining whether to enter the factoring agreement?
The cost of borrowing the maximum amount of credit available to MDM Inc. through the factoring agreement is%. (Round to two decimal
places.)
b. What considerations other than cost should MDM Inc. account for in determining whether to enter the factoring agreement? (Select the best
answer below.)
O A. Of particular concern here is the presence of any government restrictions associated with factoring. In some industries, factoring simply is
not used unless the firm's financial condition meets government guidelines.
O B. Of particular concerm here is the presence of any "stigma" associated with factoring. In some industries, factoring simply is not used unless
the firm's financial condition is critical.
OC. Of particular concern here is the presence of any "stigma" associated with factoring. In some industries, factoring is always used, no matter
the firm's financial condition.
O D. Of particular concern here is the presence of any "preferred status" associated with factoring. In some industries, factoring simply is not
used unless the firm's financial condition is credit worthy.
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