Factoring: Pride, Ltd., sells $150,000 of its accounts receivable to factors at 2.875 per cent discount. The company's average collection period is 75 days. What is the simple annual interest cost of the factors loan?

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Quizplus · Accepted Answer

The discount rate is 2.875% for 75 days. To find the annual interest cost, convert the 75-day rate to an annual rate: (2.875% / 75 days) * 365 days = 13.9833%. The effective annual interest rate is calculated as (1 + 0.139833)^(365/75) - 1, which approximates to 35.5%.