Ignoring Defaults, What Is the Approximate Effective Cost of Factoring

question 8

Multiple Choice

Ignoring defaults, what is the approximate effective cost of factoring if receivables are sold at a 4% discount and the average collection period is 2 months?

• A) 19.40%
• B) 24.00%
• C) 26.53%
• D)27.75%

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Definitions:

Revenue

The sum of income a corporation generates from selling products or offering services over a specified timeframe.

Expense

refers to the money spent or cost incurred in an organization's efforts to generate revenue, representing the cost of doing business.

Prepaid Expense

Expenditures paid for in advance and recorded as assets before they are used or consumed.

Asset

An economic resource owned or controlled by an individual or entity, expected to provide future benefits.