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LoDo Tiles Inc. is considering factoring its receivables. The company s average collection period is 5 5 days, and its average level of receivables is

LoDo Tiles Inc. is considering factoring its receivables. The companys average collection period is 55 days, and its average level of receivables is $750,000. The factor has indicated that it requires a 15% reserve for returns and allowances, and charges a 2.5% factoring commission, with the commission to be paid up front. The factor will advance LoDo Tiles funds at 2.0 percentage points over the prime lending rate, which is currently 5.0%. Interest is to be paid up front. Determine the effective annual rate of the factoring. Assume 365 days in a year.

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