Foundations of Finance (9th Edition) (Pearson Series in Finance)
9th Edition
ISBN: 9780134083285
Author: Arthur J. Keown, John D. Martin, J. William Petty
Publisher: PEARSON
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Chapter 15, Problem 14SP
(Cost of factoring) MDM, Inc. is considering factoring its receivables. The firm has credit sales of $400,000 per month and has an average receivables balance of $800,000 with 60-day credit terms.
The factor has offered to extend credit equal to 90 percent of the receivables factored less interest on the loan at the rate of 1.5 percent per month. The 10 percent difference in the advance and the face value of all receivables factored consists of a 1 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 $1,500 a month.
- a. What is the cost of borrowing the maximum amount of credit available to MDM, Inc. through the factoring agreement?
- b. What considerations other than cost should MDM, Inc. account for in determining whether to enter the factoring agreement?
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Chapter 15 Solutions
Foundations of Finance (9th Edition) (Pearson Series in Finance)
Ch. 15 - Dell Computer Corporation (DELL) has long been...Ch. 15 - Prob. 2RQCh. 15 - Prob. 3RQCh. 15 - Prob. 4RQCh. 15 - Explain what is meant by the statement The use of...Ch. 15 - Prob. 6RQCh. 15 - Prob. 7RQCh. 15 - How can the formula interest = principle rate ...Ch. 15 - How can we accommodate the effects of compounding...Ch. 15 - Prob. 10RQ
Ch. 15 - Prob. 11RQCh. 15 - Prob. 12RQCh. 15 - Prob. 1SPCh. 15 - Prob. 2SPCh. 15 - Prob. 3SPCh. 15 - (Estimating the cost of bank credit) Paymaster...Ch. 15 - (Cost of short-term financing) The R. Morin...Ch. 15 - (Cost of secured short-term credit) The Marlow...Ch. 15 - (Cost of short-term financing) You plan to borrow...Ch. 15 - Prob. 8SPCh. 15 - (Cost of trade credit) Calculate the effective...Ch. 15 - (Annual percentage yield) Compute the cost of the...Ch. 15 - Prob. 11SPCh. 15 - (Cost of accounts receivable) The Michelin...Ch. 15 - (Cost of accounts receivable) The Michelin...Ch. 15 - (Cost of factoring) MDM, Inc. is considering...Ch. 15 - (Cost of factoring) A factor has agreed to lend...Ch. 15 - Prob. 16SPCh. 15 - Prob. 17SP
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