MovieTone,Inc.is a producer and distributor of specialty DVDs.It sells directly to large retail firms on terms of net 60 and has average monthly sales of $350,000.It has recently decided to pledge all of its accounts receivable to its bank.The bank advances up to 80 percent of the face value of these receivables at a rate of 4 percent over the prime rate,while charging 2.5 percent on all receivables pledged for processing to cover billing and collection services.Prior to this arrangement MovieTone was spending $50,000 a year on its credit department.The prime rate is 6 percent.
a.What is the average level of accounts receivable?
b.What is the effective cost of using this short-term credit for one year?

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The Answer of MovieTone,Inc.is a producer and distributor of specialty DVDs.It sells directly to large retail firms on terms of net 60 and has average monthly sales of $350,000.It has recently decided to pledge all of its accounts receivable to its bank.The bank advances up to 80 percent of the face value of these receivables at a rate of 4 percent over the prime rate,while charging 2.5 percent on all receivables pledged for processing to cover billing and collection services.Prior to this arrangement MovieTone was spending $50,000 a year on its credit department.The prime rate is 6 percent.
a.What is the average level of accounts receivable?
b.What is the effective cost of using this short-term credit for one year?