Question 1: Gunter's toy factory produces a range of toys. All the products of the company are sold on credit terms. Recently, Gunter's been having severe cash flow problems and no longer want to have to chase after his cash-strapped customers. Therefore, he has decided to finance a substantial overdraft . Gunter borrows from its bank at 13% pa interest. No further sales growth in volume or value terms is planned for the next year. In order to solve cash flow problems and speed up collection from customers, Gunter is considering two alternative policies. Option one: One way to speeding up collection from receivables is to use a factor. It has considered an agreement from an interested factoring entity. This is expected to generate administrative savings of $220,000pa. The average receivable collection period will be reduced by 20 days. The factor will make a service charge of 1.2% of Gunter's revenue and also provide credit insurance facilities for an annual premium of $95,000. Option two: Offering discounts to customers who settle their accounts early. Payment within 20 days of despatch of invoices will be offered 2% discount. It is estimated that customers 50% of Gunter's sales will take up the discount and pay within 20 days. The remainder continues to take their present credit period. Fvtrartc from Gilintor'c moct roront arroilntc aro givan holnis 5 Required: 1. Calculate the costs and benefits of the company using option one. 2. Calculate the costs and benefits of the company using option two. 3. Identity the most financially advantageous option and elaborate the possible benefits and drawbacks