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A Firm Sells Its $1,000,000 of Receivables to a Factor

question 109

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A firm sells its $1,000,000 of receivables to a factor for $960,000. What is the effective annual rate on this arrangement if the average collection period is one month?


Definitions:

Excise Tax

A tax levied on specific goods or services, such as tobacco, gasoline, and alcohol, typically aimed at discouraging use or raising government revenue.

Indirect Tax

Tax on a thing rather than on a particular person; for example, sales tax.

Social Security Tax

A payroll tax collected to fund the Social Security program, which provides retirement, disability, and survivorship benefits to eligible Americans.

Government Role

The involvement and responsibilities assumed by a government in regulating and guiding the economy, protecting citizens, and providing public services.

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