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Question says factor will advance 80% of revised book value of receivables (2042466). Interest rate on the advance would be 2% higher than the 7% currently paid on overdraft.
I calculated the advance cost like this . 80%*9%*2042466. In the answer it is calculate like this. 80%*2%*2042466. I dont understand why.The difference is the % cost the factor offers with your current O/D rate. As above you would only need to calculate the advance cost of (9%-7%), hope this helps.
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