Assume that the account receivables for the end of the year is $150,000. Young entrepreneurs are considering factoring the receivables to raise cash to help finance your venture’s growth. The factor imposes a 6 percent discount and changes an additional 1 percent for each expected ten-day average collection period thirty days. Estimate the dollar amount you would receive from the factor for your receivables if the average collection period were sixty days.
A young entrepreneur founded a packaged beverage company in early 2022. Based on
information gathered from consumers, the young entrepreneur plans to increase sales of
packaged drinks in 2023, by producing packaged drinks with new flavors.
Revenue in 2022 is $500,000 and is expected to reach $1,500,000 in 2023. Each bottled beverage
will sell for $5, and the bottled beverage costs $2 per bottle to produce. Administrative costs
including the young entrepreneur’s salary, salary of one accountant and three clerks, are
estimated at $200,000 and marketing costs such as posters, advertisements in local newspapers,
are estimated at $350,000 in 2023. Then, investment in special equipment and renovation of
Warehouses accounts for $562,500 and $62,500 in inventory, which was done in 2022. Moreover,
an additional $150,000 in equipment investment is expected to be needed in early 2023 to
increase the production volume of their bottled beverage. Currently, the old machine is still
capable of producing the targeted amount of bottled drinks, it’s just that the machine has to work
for 24 hours a day. Machinery
expenses are expected to be $18,000 in 2023. The tax rate is expected to be 25 percent of taxable
income.
Question:
Assume that the
entrepreneurs are considering factoring the receivables to raise cash to help finance your
venture’s growth. The factor imposes a 6 percent discount and changes an additional 1
percent for each expected ten-day average collection period thirty days. Estimate the dollar
amount you would receive from the factor for your receivables if the average collection
period were sixty days.
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