Ranger Enterprises is considering pledging its receivables to finance a needed increase in working capital. Its commercial bank will lend 65 percent of the pledged receivables at 1.5 percentage points above the prime rate, which is currently 9 percent. In addition, the bank charges a service fee equal to 2 percent of the pledged receivables. Both interest and the service fee are payable at the end of the borrowing period. Ranger’s average collection period is 50 days, and it has receivables totaling $6 million that the bank has indicated are acceptable as collateral. Calculate the annual financing cost for the pledged receivables. Assume that there are 365 days per year. Round your answer to two decimal places. %
Ranger Enterprises is considering pledging its receivables to finance a needed increase in working capital. Its commercial bank will lend 65 percent of the pledged receivables at 1.5 percentage points above the prime rate, which is currently 9 percent. In addition, the bank charges a service fee equal to 2 percent of the pledged receivables. Both interest and the service fee are payable at the end of the borrowing period. Ranger’s average collection period is 50 days, and it has receivables totaling $6 million that the bank has indicated are acceptable as collateral. Calculate the annual financing cost for the pledged receivables. Assume that there are 365 days per year. Round your answer to two decimal places.
%
Step by step
Solved in 5 steps
