The Bone Company has been factoring its accounts receivable for the past 5 years. The factor charges a fee of 2 percent and will lend up to 80 percent of the volume of the receivables purchased for an additional 1.5 percent per month. The firm typically has sales of $500,000 per month, 70% of which are on credit. By using the factor, two savings would be effected:

$2,000 per month that would be required to support a credit department

A bad-debt expense of 1% on credit sales.

The firm`s bank has recently offered to lend the firm up to 80% of the face value per annum interest plus a 2% monthly processing charge per dollar of receivables lending. The firm extends terms of net 30, and all customers who pay their bills do so by the 30<sup>th</sup> day. Should the firm discontinue its factoring arrangement in favor of the bank`s offer if the firm borrows, on the average, $100,000 per month on the receivables?

*Add a graph and a table to your answer.