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:

Market Quantity Supplied

The total amount of a specific good or service that is available to consumers in a market at a given price and time.

Sellers Bid

The price at which sellers are willing to sell a good or service, often in the context of an auction or market with direct seller-buyer interactions.

Producer Surplus

The discrepancy in the anticipated versus actual financial returns for producers selling a good or service.

Croissants

A flaky, buttery pastry of Austrian origin that is associated with French cuisine and often eaten for breakfast.