Computing the effective annual cost of loan, Financial Accounting

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Computing the effective annual cost of loan

Response to the following problem:

Suppose that a factor is willing to lend you $6 million for one month, using your firm's accounts receivable as collateral. If the annual percentage rate on this loan is 12%, what is the effective interest rate? If the factor charges an up-front fee of 2%, what is the effective annual cost of this loan?

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Financial Accounting: Computing the effective annual cost of loan

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