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17 December, 21:46

Ocala Clinic's services result in $5,000 in daily billings to third-party payers. On average, it takes the clinic 50 days to collect its receivables. If the interest rate on loans needed to finance receivables (cost of carrying receivables) is 10 percent, what is the clinic's dollar annual cost of financing its receivables balance?

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  1. 18 December, 01:32
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    Answer: $25,000

    Explanation:

    Carrying cost of receivables = 10% interest on loan to finance receivables

    Daily billing to third party payers = $5000

    Average Period to collect receivables = 50 days

    Interest payment = 10% * $5000

    Interest payment = 0.1 * $5,000

    Interest payment = $500

    Dollar annual cost of financing receivable balance:

    Daily interest payment * average period to collect receivables

    $500 * 50 = $25,000
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