Your Firm Factors Its Accounts Receivable Immediately at a 3

question 50

Multiple Choice

Your firm factors its accounts receivable immediately at a 3% discount. The average collection period is 41.95 days. Assume that all accounts are collected in full. What is the effective annual interest rate on this arrangement?

• A) 27.9%
• B) 30.3%
• C) 31.7%
• D) 32.9%
• E) 34.3%

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Definitions:

Product Cost

The total cost incurred to create a product, encompassing direct materials, direct labor, and overhead costs.

Straight-Line Depreciation

A method of calculating the depreciation of an asset where the cost is evenly spread over its useful life.

Variable Costs

Expenses that vary in relation to the amount of production or business operations.

Cost Concepts

The principles and classifications used to determine the costs of products, services, and activities, enabling businesses to analyze profitability.