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Forums › ACCA Forums › ACCA FM Financial Management Forums › Working Capital management
A company has daily sales of $150 000. A debt factor has guaranteed to reduce the company’s receivables collection time by 4 days for a monthly fee of $2500. Cash surpluses can be invested in money market deposits yielding 4% per annum.
What is additional annual income / (loss) from using the cash management service?
Answer : $(6000)
May I know how to get the answer?
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If the collection period is reduced by 4 days, then there will be an interest saving of
4 x $150,000 x 4% = $24,000 per year.
The cost of the factor is 12 x $2,500 = $30,000 per year.
Therefore there is a net loss of 30,000 – 24,000 = $6,000.