CPA-BUSINESS practice question 14 of 35
The Frame Supply Company has just acquired a large account and needs to increase its working capital by $100,000. The controller of the company has…
Choose your answer, then check it against the explanation.
The Frame Supply Company has just acquired a large account and needs to increase its working
capital by $100,000. The controller of the company has identified a source of funds which is given
below:
Pay a factor to buy the company's receivables, which average $125,000 per month and have an
average collection period of 30 days. The factor will advance up to 80 percent of the face value of
receivables at 10 percent and charge a fee of 2 percent on all receivables purchaseD. The controller
estimates that the firm would save $24,000 in collection expenses over the year. Assume the fee and
interest are not deductible in advance.
Assume a 360-day year in all of your calculations.
The cost of factoring is:
Question 14 of 35
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