Page 480 - Microsoft Word - 00 ACCA F9 IWB prelims 2017.docx
P. 480
Chapter 20
Second factor:
On 85% of sales the factor will make immediate payment, removing the 6%
overdraft cost for the receivables in relation to those sales. Instead, however,
the factor will charge a 7% cost. So that will represent an increase of 1% in
terms of the financing cost for these receivables.
$7,808,219 × 85% = $6,636,986.
Extra cost at 1% = $66,370.
Factor fee = $50m × 0.25% = $125,000
Total cost = $191,370
Admin saving: $100,000.
This is not acceptable to ABC Co as they will be $91,370 worse off.
472
