Bold Co, Part C (BPP practice kit) - Alternative Theory

Dear fellow students & tutors, My friend & I have an alternative theory in relation to this question. We understand that the answer is not similar to the answer provided in the practice kit. However, we would like to put our theory to the test. Kindly give us a feedback. With-recourse offer Revised trade receivables under factoring = $2,042,466 Reduction in trade receivables = $3,500,000 - $2,042,466 = $1,457,534 Admin cost savings = $40,000 Bad debt savings $21,300,000 x (9 - 6)% = $ 63,900 Finance cost savings: - Reduction in trade receivables $1,457,534 x 7% = $102,027 - Reduction in overdraft to nil, restricted to $210,000 - 102,027 (W1) = $107,973 Less: Factor fee $21,300,000 x 0.75% = - $159,750 Interest on factor advance $2,042,466 x 80% x 9% = - $147,058 Value of with-recourse offer = $7,092 (W1) Overdraft balance upon reduction in trade receivables $3,000,000 - $1,457,534 = $1,542,466 Further reduction in overdraft due to factor advance $2,042,466 x 80% = $1,633,973 The overdraft balance should turn into a positive bank balance after the factoring advance. This means that the total amount of finance cost (i.e. $210,000) would be saved.