Maximum Bank has analyzed the accounts receivable of Scientific Software, Inc. The bank has chosen eight accounts

Question:

Maximum Bank has analyzed the accounts receivable of Scientific Software, Inc. The bank has chosen eight accounts totaling $134,000 that it will accept as collateral. The bank’s terms include a lending rate set at prime 3% and a 2% commission charge. The prime rate currently is 8.5%.

a. The bank will adjust the accounts by 10% for returns and allowances. It then will lend up to 85% of the adjusted acceptable collateral. What is the maximum amount that the bank will lend to Scientific Software?

b. What is Scientific Software’s effective annual rate of interest if it borrows $100,000 for 12 months? For 6 months? For 3 months?

Accounts Receivable
Accounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that...