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:

Cost of Production

The total expense incurred in manufacturing a product or providing a service, including raw materials, labor, and overhead costs.

Actual Price Level

The current index of the price of goods and services in an economy, reflecting the purchasing power of money and the cost of living at a certain time.

Short-Run Aggregate Supply Curve

A graphical representation that shows the relationship between the price level and the quantity of goods and services that producers are willing and able to supply in the short run.

Expected Price Level

The anticipated average level of prices in the economy for goods and services over a specific period.