1. Royal Electronics manufactures and sells rechargeable battery packs. The firm has JPY 25,000,000 in accounts receivable due in 60 days (2 months). Royal has decided to obtain financing by factoring the receivables. The factor provides an advance rate of 90%, and the factoring fee is 3.0%. The factoring fee is paid at maturity, when the receivables are collected. What is the all-in (effective annual) cost of financing Royal’s accounts receivable through factoring?
A. 9.52%
B. 13.63%
C. 14.08%
D. 21.74%
2. A Korean coffee cup manufacturer sell $3,000,000 in accounts receivable to a factor. The receivables are due in 60 days. The factor charges a 1.5% per month factoring fee for purchasing the accounts receivable and the fee is paid at the time the receivables are sold to the factor. What is the all-in (effective annual) cost of financing the A/R through factoring?
A. 17.46%
B. 20.05%
C. 2.10%
D. 28.08%
3. Suppose that Pentel has received a large order for ink pens from a retailer in Vietnam. The transaction is being financed with a letter of credit and HSBC Vietnam is the issuing bank. Being a U.S. based company, Pentel doesn’t know much about HSBC Vietnam and is concerned about the creditworthiness of the bank. Pentel’s advisory bank, UMB, is familiar with HSBC Vietnam and promises payment to Pentel even if HSBC Vietnam defaults. UMB is taking the role of a(n)
A. confirming bank.
B. negotiating bank.
C. issuing bank.
D. in-house bank.