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Crisis Limited is considering obtaining funding through advances against debtors. Total annual credit sales are N$600 00
Posted: Mon Nov 15, 2021 5:08 pm
by answerhappygod
- Crisis Limited Is Considering Obtaining Funding Through Advances Against Debtors Total Annual Credit Sales Are N 600 00 1 (32.3 KiB) Viewed 59 times
Crisis Limited is considering obtaining funding through advances against debtors. Total annual credit sales are N$600 000, terms are net 30days and payment is on average 30days. New Era Finance will advance funds under a pledging arrangement for 13%annual interest. On average, 75% of credit sales will be accepted as collateral. Quick Finance offers factoring on a nonrecourse basis for 1% factoring commission charging 1.5%per month on advances and requiring a 15% factor reserve. Under this plan, the firm would factor all accounts and close its credit and collections department, saving N$10 000 per year. (1). What is the effective interest rate and the average amount of funds available under pledging, and under factoring? [15marks] (2) Which plan would you recommend and why? [15marks] NB: (1) Use 360 days for a year (2) Round off amounts and percentages.