BSI has been approached by a factor that offers to purchase the Angkor Wat Entertainment Inc.

exports receivable at a 15 percent per annum discount plus a 150 basis points charge for a nonrecourse clause.

a. What is the annualized percentage all-in cost of this factoring alternative?

b. How does factoring compare to bank financing proposed in problem 4?

Which method do you recommend? What is/are the risk(s) incurred by BSI under either method?

Data from problem 4

BSI has sold to Cambodia’s Angkor Wat Entertainment Inc.(CAWE) INR 10 million licensing rights to 10 of its recent films. Payment is due in six months. BSI can simply finance its exports by drawing on its credit line from the State Bank of India at the rate of 12 percent and purchase export credit insurance from the Ex-Im Bank of India at the cost of 175 basis points.