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?

Question

Quizplus · Accepted Answer

The all-in-cost of the factoring alternative includes both the annualized discount rate and the nonrecourse clause charge. The discount is 12% per annum, but since the receivables are due in 270 days (less than a year), we need to annualize this rate. The formula for the annualized rate is $ \text{Annualized Rate} = \left(\frac{\text{Discount Rate}}{1 - \text{Discount Rate} \times \frac{\text{Days}}{360}}\right) $. Plugging in the numbers, we get $ \text{Annualized Rate} = \left(\frac{0.12}{1 - 0.12 \times \frac{270}{360}}\right) = 0.13043478 $ or 13.04%. Adding the 1% charge for the nonrecourse clause gives us a total of 14.04%. However, since none of the options exactly match this calculation due to rounding or potential calculation differences, the closest option provided is 14.82%, indicating a possible need for recalculating or considering the approximation in the options given.