Ignoring Defaults, What Is the Approximate Effective Cost of Factoring

question 34

Multiple Choice

Ignoring defaults, what is the approximate effective cost of factoring if receivables are sold at a 2% discount and the average collection period is 1 month?

• A)19.40%
• B)24.00%
• C)26.53%
• D)27.40% $(100-98)/$98 = 2.04% per two-month period

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Definitions:

HHI

Herfindahl-Hirschman Index, a measure of market concentration to assess the level of competition among firms.

Herfindahl-Hirschman Index

An economic indicator used to evaluate the level of competition within an industry by measuring the concentration of market share held by the largest firms.

Proposed Merger

A plan or offer for two or more entities to combine their operations, resources, and managerial activities into a single unit.

Industry Concentration

Industry concentration is a measure of the extent to which a small number of firms dominate the total production, sales, or market share in a particular industry, often analyzed through concentration ratios or the Herfindahl-Hirschman Index (HHI).