CFIN6
Chapter 14 Spreadsheet Problem
Managing Short-Term Liabilities
Use the model in File C14 to solve this problem.
Cooley Industries needs an additional $500,000, which it plans to obtain through a factoring
arrangement. The factor would purchase Cooley’s accounts receivables and advance the invoice amount,
a. What amount of accounts receivable must be factored to net $500,000?
b. If Cooley can reduce credit expenses by $3,500 per month and avoid bad debt losses of 2.5 percent
on the factored amount, what is the total dollar cost of the factoring arrangement?
c. What would be the total cost of the factoring arrangement if Cooley’s funding needs rose to
$750,000? Would the factoring arrangement be profitable under these circumstances? Assume the
conditions described in part b exist.