Question
AKM Limited has annual credit sales of $20 million with an average collection period is 12 months. The company is considering factoring its A/R balances
AKM Limited has annual credit sales of $20 million with an average collection period is 12 months. The company is considering factoring its A/R balances with a Rough Financing Limited at a 10% annual interest rate and 12% reserve requirement. Rough Financing charges factoring commission of 2.5%. Historically 95% of credit sales by AKM Limited are good sales and collectible. The credit administration department has a fixed operating cost $9000 per collection cycle, while the variable cost for collection and credit admin cost is 1.5% on credit sales.
What is the annualized effective interest rate for AKM Limited?
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