Prudoe Fuels factors its accounts receivable immediately at a discount of 1.65 percent.The average collection period is 43 days.Assume all accounts are collected in full.What is the effective annual interest rate on this arrangement? Assume a 365-day year.

Question

Quizplus · Accepted Answer

Effective annual rate = {1 + [0.0165 / (1 − 0.0165)]}³⁶⁵^/43 − 1 = 0.1517,or 15.17%

Prudoe Fuels Factors Its Accounts Receivable Immediately at a Discount