Prudoe Fuels Factors Its Accounts Receivable Immediately at a 1

question 7

Multiple Choice

Prudoe Fuels factors its accounts receivable immediately at a 1.5 percent discount.The average collection period is 32 days.Assume all accounts are collected in full.What is the effective annual interest rate on this arrangement?

• A)19.97%
• B)18.81%
• C)26.09%
• D)26.67%
• E)18.51%

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Definitions:

Negotiated Price Approach

An approach to transfer pricing that allows managers of decentralized units to agree (negotiate) among themselves as to the transfer price.

Transfer Price

The price at which goods and services are sold between divisions within the same company.

Responsibility Centers

Units or departments within an organization, each accountable for its own activities and financial results.

Investment Center

An investment center is a business unit within an organization that has control over its revenues, expenses, and investments, and is evaluated based on its return on investment.