Accounts receivable as collateral, cost of borrowing Maximum Bank has analyzed the accounts receivable of Scientific Software, Inc. The bank has chosen eight accounts totaling $134,000 that it will accept as collateral. The banks terms include a lending rate set at prime3% and a 2% commission charge. The prime rate currently is 8.5%. a. The bank will adjust the accounts by 10% for returns and allowances. It then will lend up to 85% of the adjusted acceptable collateral. What is the maximum amount that the bank will lend to Scientific Software? b. What is Scientific Softwares effective annual rate of interest if it borrows $100,000 for 12 months? For 6 months? For 3 months? (Assume that the prime rate remains at 8.5% during the life of the loan.)
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