John is a factor who has just bought $40 000 worth of finished goods for $24 000. The profit that he will make on this transaction depends on
A) the quality of the receivables, the cost of collecting them, and interest rates.
B) the cash he has available, and the trade credit he is able to get.
C) the availability of government loans, the quality of the receivables, and the interest rate.
D) the interest rate, the cost of collecting the receivables, and the maturity date of bonds of his company.
E) the general state of the economy, the number of firms who might be interested in the receivables, and the amount of money those firms have available.

Question

Quizplus · Accepted Answer

The profit that John will make on this transaction depends on the quality of the receivables, the cost of collecting them, and interest rates. A factor's profit is determined by the difference between the price paid for the receivables and the amount collected from the debtors. The quality of the receivables, the cost of collecting them, and interest rates are key factors that affect the amount that can be collected and therefore, the profit that John will make.

John Is a Factor Who Has Just Bought $40 000