Which of the Following Statements Is Correct

question 123

Multiple Choice

Which of the following statements is correct?

• A) In a factoring arrangement,the factor always performs three functions: (1)credit checking, (2)lending,and (3)receivables collection.
• B) The pledging of accounts receivable involves a transfer of the risk associated with accounts receivable from the borrower to the lender.
• C) In a factoring arrangement,the seller can select various combinations of credit checking,lending,and risk bearing the factor performs by changing provisions in the factoring agreement.
• D) In a factoring agreement,the factor would not perform the credit checking and risk taking functions without performing the lending function,because the former are required before the factor can lend to the seller.
• E) The financing of accounts receivable involves an agreement which is informal and non-binding,which makes it difficult for the factor to protect itself.

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Definitions:

Computed

Refers to something that has been determined or calculated using a computer or calculator.

Net Present Value

A method used in capital budgeting to assess the profitability of an investment or project, calculated by discounting the expected future cash flows to their present values and subtracting the initial investment.

Present Value

The immediate value of a future amount of money or a series of payments, discounted at a given rate of return.

Compound Interest

Interest calculated on the initial principal and also on the accumulated interest of previous periods.