Assume that the operation of your business resulted in sales of $730,000 last year. Year-end receivables are $100,000. You are considering factoring the receivables to raise cash to help fi- nance your venture’s growth. The factor imposes a 7 percent discount and charges an additional 1 per- cent for each expected ten-day average collection period over thirty days.
Estimate the dollar amount you would receive from the factor for your receivables if the collection period were thirty days or less.
Estimate the dollar amount you would receive from the factor for your receivables if the average col- lection period were sixty days.
Show how your answer in Part B would change if the factor charges an 8 percent discount and charges an additional 0.5 percent for each expected fifteen-day average collection period over thirty days.
If the $730,000 in sales last year were evenly distributed throughout the year, an average $100,000 in receivables outstanding would imply what average collection period? Given the original terms stated in the problem, what dollar amount would you expect to receive for your receivables?