For the year just ended westpoint ltd had 500000 in credit, Ask an Expert

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For the year just ended, WestPoint Ltd. had $500,000 in credit sales monthly with an average maturity of receivables of 45 days. WestPoint Ltd uses a factor to obtain funds 15 days after the sales. This means the factor is advancing funds for 30days. The factor charges 10.5 percentage interest (APR), 2.5 percentage over the current prime rate of 8 percentage. In addition, the factor charges 1.5 percentage fee for processing the receivables and assuming all credit risk. If WestPoint ran its own credit department, it would cost $2,000 per month in variable expenses and this saved with factoring. What is the effective cost of borrowing?

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Financial Management, Finance

Category:- Financial Management
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