Determine the Break-Even Probability of Collection for the Following Seller

question 17

Short Answer

Determine the break-even probability of collection for the following seller: $2,000 average invoice, 64% costs, 1% per month opportunity cost of capital. Assume all dollar values are present values.

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Definitions:

Accounts Payable Balance

The total amount of money that a company owes to its suppliers or creditors for items or services purchased on credit.

Sales

Revenue generated from goods or services sold by a company in a specific period.

COGS

Short for Cost of Goods Sold, it represents the direct costs attributable to the production of the goods sold by a company.

Factoring Costs

Expenses associated with selling accounts receivable to a third party, commonly referred to as a factor, to improve cash flow.