Percentages need to be entered in decimal format, for instance 3% would be entered as .03.) Cooley Industries needs an additional $500,000, which it plans to obtain through a factoring arrangement. The factor would purchase Cooley's accounts receivables and advance the invoice amount, minus a 2% commission, on the invoices purchased each month. Cooley sells on terms of net 30 days. In addition, the factor charges a 12% annual interest rate on the total invoice amount, to be deducted in advance. (This information is shown on the spreadsheet provided.) Would it be to Cooley's advantage to offer to pay the factor a commission of 2.5% if it would lower the interest rate to 10.5% annually? Assume the firm needs $500,000. Explain your answer.Assume a commission of 2% and an interest rate of 12%. What would be the total cost of the factoring arrangement if Cooley's funding needs rose to $650,000? Would the factoring arrangement be profitable under these circumstances? Why or why not? appropiale output uala ileiTIs.INPUT DATA:ΚΕY OUTPUTFunds needed$500,000Rec. to be factored$515,464Commission (%)2.00%12.00% Costs per month$15,464$16,387$923$11,072Interest rateCredit period (months)Reduction in expenses1 Savings per month$3,5002.50% Net savings per yearNet savings per monthReduction in bad debt losses (%)MODEL-GENERATED DATA:Accounts receivables needed to factor:$515,464Monthly costs:$10,3095,155$15,464CommissionInterestTotal monthly costsMonthly savings:Credit expense$3,50012,887Bad debt lossesTotal monthly savings$16,387Net monthly savings$923Net annual savings$11,072

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Answered: Percentages need to be entered in…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Percentages need to be entered in decimal format, for instance 3% would be entered as .03.)

Cooley Industries needs an additional $500,000, which it plans to obtain through a factoring arrangement. The factor would purchase Cooley's accounts receivables and advance the invoice amount, minus a 2% commission, on the invoices purchased each month. Cooley sells on terms of net 30 days. In addition, the factor charges a 12% annual interest rate on the total invoice amount, to be deducted in advance. (This information is shown on the spreadsheet provided.)

Would it be to Cooley's advantage to offer to pay the factor a commission of 2.5% if it would lower the interest rate to 10.5% annually? Assume the firm needs $500,000. Explain your answer.
Assume a commission of 2% and an interest rate of 12%. What would be the total cost of the factoring arrangement if Cooley's funding needs rose to $650,000? Would the factoring arrangement be profitable under these circumstances? Why or why not?

appropiale output uala ileiTIs.
INPUT DATA:
ΚΕY OUTPUT
Funds needed
$500,000
Rec. to be factored
$515,464
Commission (%)
2.00%
12.00% Costs per month
$15,464
$16,387
$923
$11,072
Interest rate
Credit period (months)
Reduction in expenses
1 Savings per month
$3,500
2.50% Net savings per year
Net savings per month
Reduction in bad debt losses (%)
MODEL-GENERATED DATA:
Accounts receivables needed to factor:
$515,464
Monthly costs:
$10,309
5,155
$15,464
Commission
Interest
Total monthly costs
Monthly savings:
Credit expense
$3,500
12,887
Bad debt losses
Total monthly savings
$16,387
Net monthly savings
$923
Net annual savings
$11,072

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