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Rogue Spices Inc
Rogue Spices Inc. has a Canadian receivables contract for $200,000 due in 270 days. The firm has been approached by a factoring firm that offers to purchase the receivables at a 12% per annum discount plus a 1% charge for a nonrecourse clause. What is the annualized percentage all-in-cost of this factoring alternative?
Expert Solution
| Computation of Annualized Cost of Factoring: | |
| Amount of Discount = Receivables Amount * Discount Rate * Time | |
| =200000 * 12% * 270/365 | |
| $17,753.42 | |
| Non-recourse fees | 1.00% |
| Non- recourse Fees = Amount of Receivables * Fees | |
| = 200000 * 1% | |
| 2000 | |
| Total cost of factoring = 17753.42 + 2000 | |
| $19,753.42 | |
| Amount received = 200000 - 19253.42 | |
| $180,246.58 | |
| Annualized Cost = Total Cost of Factoring/ Amount Received * 365/No. of Days | |
| = 19253.42/180246.58 * 365/270 * 100 | |
| 14.44% | |
| So, annualized cost of factoring is 14.44% |
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