Greenland Dairy Has Annual Credit Sales of $29

Multiple Choice

Greenland Dairy has annual credit sales of $29.2 million. The company's collection period is 45 days. The company has been financing its receivables with a bank overdraft at 17%. A proposal from a factoring business offers a cash advance of 80% of receivables at an interest rate of 14%. Further, the factor expects to collect all receivables within 40 days and charge 2% of collections. Greenland will save $50,000 in collections administration. Which of the following will the factoring arrangement do?

A) Save the company $14,000
B) Cost the company $14,000
C) Cost the company $389,200
D) Save the company $130,800
E) Save the company $239,000