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I’m having trouble understanding factoring receivables. I have a question on this, can you look at this? thanks.
A factor will buy company’s receivables (Rs.8 million per month), which have a collection
period of 60 days. The factor shall advance up to 80 percent of face value of the receivables
at 8% on an annual basis. The factor shall also charge 1.5% fee on all receivables purchased.
It has been estimated that the factor’s services will save the company a credit department
expense and bad-debt expense of Rs 92,000 per month.
1.Who is giving interest to whom? and calculation of interest.
mine solution is
fee (8000000*1.5%*12) 1440,000
interest(8,000,000* 80% * 8%) 512000
bad debt (92,000 * 12) (1104,000)
is it correct ??? or interest amount also multiplied by 12???
How does your solution compare to the one given in the notes that you have? Happy to explain if your answer is different to that in your notes.
Isn’t this a Financial Management question?