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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › BPP P&R Kit- Special Gift Suppliers Part (b)
Hello…
I have some problems in understanding why the one-off payment amounting to $25,000 have been multiplied by the overdraft rate of 12%.
Also, my layout of the answer different. Here’s what I did….
Annual benefits
– Finance saving on reduced receivables $29,25
– Salary $12,500
– Bad debts saved $67,500
Annual costs
– Factor’s fees $90,000
– One-off payment $25,000
Net Cost $5750
Is this layout appropriate?
Your layout is fine.
However, the ‘one-off’ payment is not an annual cost. All the other benefits and costs will occur every year, whereas the 25,000 will only be paid once.
So to make it an annual payment we need to multiply by the annual interest rate.