ABC Company has an average collection period of 41 days and factors all of its receivables...
ABC Company has an average collection period of 41 days and factors all of its receivables immediately at a 1.1 percent discount. Assume all accounts are collected in full. What is the firm's effective cost of borrowing?
Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.
Homework Answers
effective cost of borrowing = [1+rate/(1-rate)]time - 1
= [1+0.011/(1-0.011)]8.9024 - 1
= [1+ 0.011/0.989]8.9024 - 1
= [1+ 0.01112]8.9024 - 1
= [1.01112]8.9024 - 1
= 1.103457 - 1
= 10.35%
Note:- Time = 365 / 41
= 8.9024
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