LoDo Tiles Inc. is considering factoring its receivables. The company's average collection period is 55 days, and its average level of receivables is $750,000. The factor has indicated that it requires a 15% reserve for returns and allowances, and charges a 2.5% factoring commission, with the commission to be paid up front. The factor will advance LoDo Tiles funds at 2.0 percentage points over the prime lending rate, which is currently 5.0 %. Interest is to be paid up front. Determine the effective annual rate of the factoring. Assume 365 days in a year 26.8% 30.8% 25.6% 33.4%
LoDo Tiles Inc. is considering factoring its receivables. The company's average collection period is 55 days, and its average level of receivables is $750,000. The factor has indicated that it requires a 15% reserve for returns and allowances, and charges a 2.5% factoring commission, with the commission to be paid up front. The factor will advance LoDo Tiles funds at 2.0 percentage points over the prime lending rate, which is currently 5.0 %. Interest is to be paid up front. Determine the effective annual rate of the factoring. Assume 365 days in a year 26.8% 30.8% 25.6% 33.4%
Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
Problem 33P
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![LoDo Tiles Inc. is considering factoring its receivables. The company's average collection period is 55 days, and its average level of receivables is $750,000. The factor has indicated that it requires a 15% reserve for returns and
allowances, and charges a 2.5% factoring commission, with the commission to be paid up front. The factor will advance LoDo Tiles funds at 2.0 percentage points over the prime lending rate, which is currently 5.0 %. Interest is to be paid
up front. Determine the effective annual rate of the factoring. Assume 365 days in a year 26.8% 30.8% 25.6 % 33.4%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F5f59819e-fa01-47a9-a4e3-4c9cbd32e500%2Fee9f4353-f71d-4ed6-bfbb-e8894ec8279a%2Fpzormxo_processed.png&w=3840&q=75)
Transcribed Image Text:LoDo Tiles Inc. is considering factoring its receivables. The company's average collection period is 55 days, and its average level of receivables is $750,000. The factor has indicated that it requires a 15% reserve for returns and
allowances, and charges a 2.5% factoring commission, with the commission to be paid up front. The factor will advance LoDo Tiles funds at 2.0 percentage points over the prime lending rate, which is currently 5.0 %. Interest is to be paid
up front. Determine the effective annual rate of the factoring. Assume 365 days in a year 26.8% 30.8% 25.6 % 33.4%
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