A Factoring firm has credit sales of ₹300 lakhs and its average collection period is 36 days. The financial controller estimates bad debt losses are around 2% of credit sales. The firm spends ₹1,50,000 annually on debtor
CS Executive · Financial and Strategic Management · PYQS · December 2023
A Factoring firm has credit sales of ₹300 lakhs and its average collection period is 36 days. The financial controller estimates bad debt losses are around 2% of credit sales. The firm spends ₹1,50,000 annually on debtor's administration. This cost comprises of telephonic and fax bills along with salaries of staff members. These are the avoidable costs. A Factoring firm has offered to buy the firm's receivables. The factor will charge 1% commission and will pay an advance against receivables on an interest @ 12% p.a. after withholding 10% as reserve. What is the approx. Net annual benefit of factoring to the firm in rupees ? Ignore capital cost.
Answer & Explanation:
Correct Answer: Option (D)
Official answer key: (D).
Topics: Financial Management
Related Questions in this Topic
- Assume that a firm has accurately calculated the net cash flows relating to an investment proposal. If the net present v...
- A firm has EBIT of ₹ 50,000. Market value of 10% debt is ₹ 80,000 and overall capitalization rate is 20%. Market value o...
- A firm has inventory turnover of 4 and cost of goods sold is ₹ 7,50,000. With better inventory management, the inventory...
- 80% of sales of ₹ 12,00,000 of a firm are on credit. It has a Receivable Turnover of 8. What is the Average collection p...
- A Company's Raw material storage period is 20 days; Finished goods storage period is 25 days; Receivables (Debtors) coll...