How could abc collection agency manage a better outcome

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Question - ABC Collection agency is considering purchasing $900000 of invoices from Asha Limited for a 4.3% fee. ABC Collection agency collects 90% of the debts in 30days and 10% in 61 days. The costs of collecting the debts amount to 2% of face value per month for debt collected within 30days and 3% of face value per month for debts collected within 2 months. The costs of funds to the agency is 6.0% per annum.

Required -

a) Is ABC Collection agency better off by purchasing the invoice? why?

b) How could ABC Collection agency manage a better outcome?

c) How can having excessive working capital reduce the profitability of the firm?

Reference no: EM132745615

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