A Firm Sells Its Accounts Receivable to a Factor at a 2

question 21

Multiple Choice

A firm sells its accounts receivable to a factor at a 2% discount.If the average collection period is 1 month, determine the effective annual rate of interest on the factoring.

• A)27.43%
• B)28.53%
• C)29.63%
• D)30.73%

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Definitions:

Master Budget

A comprehensive financial planning document that includes all of the lower-level budgets within a company, projecting its financial activities.

Production Budget

A financial plan that estimates the number of units to be produced to meet sales goals, factoring in beginning inventory and desired ending inventory.

Cash Budget

A financial plan that estimates cash inflows and outflows over a specific period, often used to assess whether a company has sufficient liquidity.

Sales Budget

A document that estimates the future sales, often by month or quarter, projecting both volume and revenue.