Assume That Sunshine Products Inc

Multiple Choice

Assume that Sunshine Products Inc.has an agreement with Shady Finance Company to factor its receivables.Shady charges a flat commission of 2 percent of the receivables factored,plus 6 percent a year interest on the outstanding balance.It also deducts a reserve of 10 percent for returned and damaged materials.Interest and commission are paid in advance.No interest is charged on the reserve or the commission.If the average level of outstanding receivables is $700,000,and if they are turned over 4 times a year (hence the commission is paid 4 times a year) ,then what is the effective quarterly interest rate charged by Shady for this arrangement?

A) 6.05%
B) 3.83%
C) 7.52%
D) 9.31%
E) 10.56%