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Hi, Mr. Moffat.
I attempted FM Dec 2018 past paper (Ques 32- Oscar Co). I have reviewed the examiner’s answer and I am fairly comfortable with the feedback but I am still not sure why the increase in finance cost for option 2 was calculated the way it was ($36,822).
I’m aware that the calc represents:
New rec x advance x bad debt= increase
What is the rational behind that? It is not making any sense to me.
Can you explain it please?
Thanks in advance.
If you want me to answer, then in future you must ask in the Ask the Tutor Forum. This forum is for students to help each other.
The calculation does not represent what you have written.
The 2% is nothing to do with the bad debts. It is the extra interest payable on the advance (9%) over and above the overdraft interest rate (7%).
Using the factor means that they get money sooner but end up having to pay extra interest as a result.
Have you watched my free lectures on the management of receivables? The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.
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