Using Receivables to Raise Immediate Cash ULE 16.1 Suppose that you need $50,000 immediately in order to purchase welded steel roof trusses for a building that you have contracted to construct. Normally, you would simply purchase the materials on account from an established supplier, but two things prevent this. First, you have reached your credit limit with your supplier, and the sup- plier refuses to provide more. Second, your regular supplier is operating at maximum possible output and cannot deliver the trusses within the time required by your contract. You have found a supplier who will manufacture and deliver the trusses when you need them. However, this supplier does not offer credit. Further, the supplier demands an immediate deposit of one-half of the cost of the trusses, $25,000, with the remaining $25,000 paid on delivery. You have approached your bank, but the bank has refused you a loan because (1) you are at your borrowing limit, and (2) the business with which you have con- tracted is embroiled in a lawsuit with the bank, and the bank therefore will not accept the contract as collateral. You have current receivables of $67,000. You have contacted a factor in your area that has proposed two financing deals 1. The factor will purchase your receivables for 75 percent of their collection value. You will receive 95 percent of the cash immediately, and the factor will retain the remaining 5 percent until all the receivables are col- lected. If the entire $67,000 is collected, then the remaining money will be paid to you. However, the money being held will be reduced by any amount uncollected at the end of 120 days from the date of the factoring contract 2. The factor will lend you $54,000 discounted at 12 percent interest for 90 days. You must pledge 100 percent of your receivables as collateral for the loan. The factor will collect your receivables, applying 100 percent of the amount collected against the $54,000 until it is completely repaid, dollar for dollar. What should you do? Show calculations to support your decision