Titusville Petroleum Company is considering pledging its receivables to finance an increase in working capital. Citizens National Bank will lend the company 85 percent of the pledged receivables at 3 percentage points above the prime rate (currently 6%). The bank charges a service fee equal to 1.4 percent of the pledged receivables. The interest costs and the service fee are payable at the end of the borrowing period. Titusville has $2 million in receivables that can be pledged as collateral. The average collection period is 40 days. Assume that there are 365 days per year. Determine the annual financing cost to Titusville of this receivables-backed loan. Round your answer to two decimal places. %
Titusville Petroleum Company is considering pledging its receivables to finance an increase in working capital. Citizens National Bank will lend the company 85 percent of the pledged receivables at 3 percentage points above the prime rate (currently 6%). The bank charges a service fee equal to 1.4 percent of the pledged receivables. The interest costs and the service fee are payable at the end of the borrowing period. Titusville has $2 million in receivables that can be pledged as collateral. The average collection period is 40 days. Assume that there are 365 days per year. Determine the annual financing cost to Titusville of this receivables-backed loan. Round your answer to two decimal places.
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