Question 1

Assume the operation of your business resulted in sales of $730,000 last year. Year-end receivables are $180,000. You are considering factoring the receivables to raise cash to help finance your ventures growth. The factor imposes a 8 percent discount and charges an additional 1 percent for each expected ten-day average collection period over thirty 30 days.

Estimate the dollar amount you would receive from the factor for your receivables if the collection period was thirty 30 days or less.

Question 2

Estimate the dollar amount you would receive from the factor for your receivables if the average collection period was sixty days.

Question 3

Show how your answer in Question#2 would change if the factor charges a 9 percent discount and charges an additional 0.5 percent for each expected fifteen-day average collection period over thirty days.

Question 4

If the $730,000 in sales last year were evenly distributed throughout the year, an average $180,000 in receivables outstanding would imply what average collection period in days?

Question 5

Given the original terms stated in the Q#1, what dollar amount would you expect to receive for your receivables based on the collection period in Q4?