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Looking at part a of this question and just struggling with the calculation of the increase in finance cost for option 2 (2,301,370 x 0·80 x 0·02) = 36,822. Could someone explain the 80% and 2% figures used?
And is the 9% in the question just a total red herring then?
The 2% is the extra interest (paying 9% on advances as against the overdraft rate of 7%) and the 80% is because it applies to 80% of the invoices.
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thanks!
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