This answer does not count the 2% for each month, but only for one month. See the correct answer for a complete explanation.
In the process of factoring the receivables, the company will save $18,000 per year. However, there will also be some costs associated with this. Of the amount sold, the company will lose 2% of the amount of receivables. This is $24,000 per year ($100,000 × 12 × .02), giving a net cost of $6,000 per year. Additionally, they will need to pay 10% interest on the amount that is advanced to them connected to the factoring. They will receive 80% of the monthly amount of receivables, or $80,000 and because this will be done each month we can treat this as if there is always $80,000 outstanding during the year. The annual interest on this is $8,000 and adding this to the $6,000 net cost gives a total cost of $14,000 to receive a loan of $80,000. Therefore the cost is 17.5% ($14,000 / $80,000).
This answer does not include the factor's fee. See the correct answer for a complete explanation.
This is not the correct answer. Please see the correct answer for an explanation. We have been unable to determine how to calculate this incorrect answer choice. If you have calculated it, please let us know how you did it so we can create a full explanation of why this answer choice is incorrect. Please send us an email at support@hockinternational.com. Include the full Question ID number and the actual incorrect answer choice -- not its letter, because that can change with every study session created. The Question ID number appears in the upper right corner of the ExamSuccess screen. Thank you in advance for helping us to make your HOCK study materials better.
|
