Upstate Farms factors its accounts receivable immediately at a discount of 2.5 percent.The average collection period is 39 days.Assume all accounts are collected in full.What is the effective annual interest rate on this arrangement? Assume a 365-day year.

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Effective annual rate = {1 + [0.025 / (1 − 0.025)]}³⁶⁵^/39 − 1 = 0.2674,or 26.74%

Upstate Farms Factors Its Accounts Receivable Immediately at a Discount