B. Mirza Sdn Bhd is having cash flow problems due to current economic condition. The company plans to factor RM140,000 of its accounts receivable to a factoring firm, saving RM600 per month
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B. Mirza Sdn Bhd is having cash flow problems due to current economic condition. The company plans to factor RM140,000 of its accounts receivable to a factoring firm, saving RM600 per month in administrative costs. Any advance will be subject to a 12% annual interest rate, as well as a 10% reserve and a 2.5% processing fee from the factoring company. The payment period given to the company is 90 days. Assume a 360-day in a year.
Required:
Assuming the factor agrees to give the maximum advance to the company, calculate the effective annual rate of interest to Mirza Sdn Bhd on the factoring arrangement.
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