BPP P&R Kit- Special Gift Suppliers Part (b)

This topic has 1 reply, 2 voices, and was last updated 11 years ago by John Moffat.

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September 29, 2014 at 6:45 pm #202206
dookhan12
Member
- Topics: 76
- Replies: 61
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?
September 30, 2014 at 8:51 am #202239
John Moffat
Keymaster
- Topics: 57
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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.
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