Lacey's has an average collection period of 32 days and factors all of its receivables immediately at a 1.1 percent discount.Assume all accounts are collected in full.What is the firm's effective cost of borrowing?

Question

Quizplus · Accepted Answer

Interest for 32 days = 0.011/(1 - 0.011) = 0.011122; Number of periods per year = 365/32 = 11.40625; EFF = (1.011122)^11.40625 - 1 = 13.45 percent

Lacey's Has an Average Collection Period of 32 Days and Factors