Question Three Citi Bank Limited is considering factoring its accounts receivables. Credit sales total TZS 8,000,000,000/= and its collection period is not more than 50 days in a year of 365 days. The company has been experiencing severe cash flow problems and ABSA Factor Limited is prepared to offer the company the following factoring terms: 40% on each invoice will be paid immediately and interest will be charged at 2% above the current prime rate of 12%. Service fees will be charged at 2% of total sales. Citi Bank Limited is offered a discount of 3% for cash settlement by its suppliers, subject to a discount amount of 40% of its total sales. Citi Bank Limited will save about TZS 50,000,000/= in expenses if it were to factor. Required: a) Calculate the effective cost of factoring, b) Is this form of factoring effective? Justify your answer. Question Four Rainbow Construction Company is considering factoring its accounts receivables from its existing projects. Credit sales amount to approximately TZS 12,000,000,000/= per year. The company's collection period is 60 days in a year of 365 days. Loan Shark Limited is a factor company. They are prepared to offer Rainbow Construction the following factor terms: 50% on each credit invoice will be paid immediately and interest will be charged at 1.5% above the current prime rate of 11.5%, Service fees will be charged at 1% of total sales. Rainbow Construction is offered a discount of 4% for cash settlement by its suppliers, subject to a discount amount of 40% of its total sales. Rainbow will save TZS 50,000,000/= in expenses, if it were to factor. Required: a) Calculate the effective cost of factoring, b) Is this form of factoring effective? Justify your