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What is the effective annual cost of the factor arrangement

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Reference no: EM132944366

Problem 1: EastShore Inc. has an ACP of 60 days and daily credit sales of $75,000. A factor offers a 60-day accounts receivable loan equal to 90 percent of accounts receivable. The quoted interest rate is 10 percent and the commission fee is 1.5 percent of accounts receivable of the firm. As a result, the firm will save $3,000 and have a 1-percent reduction in bad debt losses, which are $500,000. What is the effective annual cost of the factor arrangement?

Reference no: EM132944366

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