A Firm Sells $125,000 of Its Accounts Receivable to Factors

question 28

Multiple Choice

A firm sells $125,000 of its accounts receivable to factors at 3 percent discount. The firm's average collection period is one month. What is the dollar cost of the factoring service?

• A) $3,000
• B) $4,500
• C) $3,750
• D) $4,250

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Definitions:

Revenue

The sum of revenue resulting from the sales of products or services that are central to a company's main business activities.

Comparative Advantage

Comparative advantage refers to the ability of a country to produce a certain good more efficiently and at a lower opportunity cost than another country.

Absolute Advantage

The capacity of a nation, person, or company to generate a greater quantity of a product or service than its rivals with an identical level of resources.

Trade

The exchange of goods, services, or both between parties, often involving the transfer of money.