Question

The firm has an average collection period of 34 days. Current practice is to factor all receivables immediately at a discount rate of (1+0.1*4)%. Assume that default is extremely unlikely. What is the effective annual interest rate on this arrangement?

A) 11.39 percent

B) 12.61 percent

C) 13.84 percent

D) 15.08 percent

E) 16.34 percent

Answer #1

**Answer is
16.34%**

Discount
Rate = (1 + 0.1*x)%

Discount Rate = (1 + 0.1*4)%

Discount Rate = 1.40%

Average Collection Period = 34 days

Effective Interest Rate
= [1 + Discount Rate / (1 - Discount Rate)]^[365 / Average
Collection Period] - 1

Effective Interest Rate = [1 + 0.0140 / (1 - 0.0140)]^[365 / 34] -
1

Effective Interest Rate = [1 + 0.0140 / 0.9860]^[365 / 34] -
1

Effective Interest Rate = 1.014199^10.735294 - 1

Effective Interest Rate = 1.1634 - 1

Effective Interest Rate = 0.1634 or 16.34%

The firm has an average collection period of 34 days. Current
practice is to factor all receivables immediately at a discount
rate of (1+0.1*x)%. Assume that default is extremely unlikely. What
is the effective annual interest rate on this arrangement? A) 11.39
percent B) 12.61 percent C) 13.84 percent D) 15.08 percent E) 16.34
percent
LET X BE 0

Your firm has an average collection period of 20 days. Current
practice is to factor all receivables immediately at a discount of
1 percent. Assume that default is extremely unlikely. What is the
effective cost of borrowing? (Do not round intermediate
calculations and enter your answer as a pecent rounded to 2 decimal
places, e.g., 32.16.)

Problem 18-7 Factoring Receivables [LO3]
Your firm has an average collection period of 22 days. Current
practice is to factor all receivables immediately at a discount of
1.2 percent. Assume that default is extremely unlikely.
What is the effective cost of borrowing? (Do not round
intermediate calculations and enter your answer as a pecent rounded
to 2 decimal places, e.g., 32.16.)

XYZ has accounts receivable with an average collection period of
25 days. A factor is willing to finance the accounts receivable at
99% of face value. What is the effective annual rate on this
financing?
A. 14.0%
B. 15.8%
C. 21.2%
D. none of the above

The Paden Corporation has annual sales of $92 million. The
average collection period is 54 days. What is the average
investment in accounts receivable as shown on the balance sheet?
(Use 365 days per year. Enter your answer in dollars, not
millions of dollars, e.g., 1,234,567. Do not round intermediate
calculations and round your answer to the nearest whole number,
e.g., 32.)
Average accounts receivable
$
Essence of Skunk Fragrances, Ltd., sells 7,300 units of its
perfume collection each...

The Newkirk Corporation has annual credit sales of $29 million.
The average collection period is 34 days.
(Enter your answer as directed, but do not
round intermediate calculations.)
Required:
What is the average investment in accounts receivable as shown
on the balance sheet? (Enter your answer
in dollars, not millions of dollars (e.g., 1,234,567). Round your
answer to 2 decimal places (e.g., 32.16).)
Average receivables
$

A firm currently has annual credit sales of $912,500 for which
the average collection period is 30 days. If, in response to
allowing the average collection period to increase to 40 days,
sales increased by 10 percent, what would be the additional
investment in accounts receivable?
A. $26,800.
B. $35,000.
C. $26,000.
D. None of the above.

Howlett Industries has annual credit sales of $120 million on
terms of net 30. Current expenses for the collection department are
running at 2.1 percent of sales, bad debt losses are 1.5 percent of
sales, and the DSO is 38 days. Howlett is considering extending the
credit period to 45 days. The change is expected to increase bad
debt losses to 1.7 percent, increase the DSO to 51 days, and
increase collection expenses to 2.3 percent of sales. Sales would...

1. A Treasury bond has a 10% annual coupon and a 10.5%
yield to maturity. Which of the following statements is CORRECT?
*
a. The bond sells at a price below par.
b. The bond has a current yield less than 10%.
c. The bond sells at a discount.
d. a & c.
e. None of the above
2. J&J Company's bonds mature in 10 years, have a par value of
$1,000, and make an annual coupon interest payment of...

A Byte
of Accounting, Inc.
d
Balance Sheet
As of June 30,
2018
Assets
Current
Assets
1110
Cash
1120
Accounts Receivable
1130
Prepaid Insurance
1140
Prepaid Rent
1150
Office Supplies
Total
Long-Term
Assets
1211
Office Equip.
1212
Accum. Depr.-Office
Equip.
1311
Computer Equip.
1312
Accum. Depr.-Computer
Equip.
1411
Building Cost
1412
Accum. Depr.-Building
1510
Land
Total
Total Assets
Liabilities
Current
Liabilities
2101
Accounts Payable
2102
Advanced Payment
2103
Interest Payable
2105
Salaries Payable
2106
Income Taxes Payable
Total
Long-Term...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 4 minutes ago

asked 22 minutes ago

asked 35 minutes ago

asked 47 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago