Pride, Inc. sells $150,000 of its accounts receivable to factors at 2.875 percent discount. The firm's average collection period is 75 days. What is the simple annual interest cost of the factors loan? Round your percentage answer to one decimal place.

Question

Quizplus · Accepted Answer

The simple annual interest cost of the factor's loan can be calculated using the formula for the annual interest rate: $Interest\ Rate = \left(\frac{Discount\ Rate}{1 - Discount\ Rate}\right) \times \left(\frac{365}{Average\ Collection\ Period}\right)$. Plugging in the values: $Interest\ Rate = \left(\frac{0.02875}{1 - 0.02875}\right) \times \left(\frac{365}{75}\right) = 35.5\%$.