caixinran
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Joined: 10 Jun 2009
Online Status: Offline
Posts: 159
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| Posted: 27 Aug 2009 at 18:01 | IP Logged
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-- I posted this on your another thread -------
This question not a typical Factoring AR question.
I am using BEKER, the typical Factoring AR question will
give you total AR, Collection Period, discount/Interest
rate, Advanced percentage, Cost of collection Fee, saving
on the collection by doing by the company itself. Then
ask for the cost of factoring..
This question is kind of different from the typical ones,
but still manageable. (Seems more like a cash flow
question to me)
1) Increase sales by $720,000.
2) Collection period for new customers is expected to be
75 days.
3) Variable costs are 80% of sales.
4) Opportunity Costs is 20% before taxes
5) Question: companys benefit/loss from change in credit
terms?
--------------------------------------------------------
1) Net Before tax cash inflow for the new policy:
$720,000 x (1-80%) = $144,000
2) Opportunity costs percentage (can be treated as the
annual interests percentage )
Then the Daily interest = 20%/360 = 0.0556%
Interest cost is only imputed on the variable portions of
the increased sales (Because that is the only money
you need to pay in advanced, but can not get it back
until 75 days)
Advanced portion = $720,000 x 80% = $576,000
Then total interest costs for the policy will be :
Interest costs = 75(days) x .556%(int per day) x $720,000
x 80%
= 75 x .0556% x $576,000 = $24,000
Then, the total benefit will be:
Net cash flow = Net Cash inflow - Net cash outflow
= $144,000 - $24,000 = $120,000
---------- Hope can help-----------
Good luck to all of us!
__________________
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