Please work problems; formula and showing how to solve problem is most important (so I can see how to solve similar problems). Thanks
Texas Computers (TC) recently has begun selling overseas. It currently has thirty foreign orders outstanding, with the typical order averaging $2,500. TC is considering the following three alternatives to protect itself against credit risk on these foreign sales:
Request a letter of credit from each customer. The cost to the customer would be $75 plus 0.25 percent of the invoice amount. To remain competitive, TC would have to absorb the cost of the letter of credit.
Factor the receivables. The factor would charge a nonrecourse fee of 1.6 percent.
Buy foreign credit insurance. The insurer would charge a 1 percent insurance premium.
a. Which of these alternatives would you recommend to Texas Computers? Why?
b. Suppose that TC's average order size rose to $250,000. How would that affect
Let us compare the costs of the three alternatives
1. Order size 2500
Letter of Credit Factor Insurance
Cost 0.25%+75 ...
The solution explains how to decide between a letter of credit or factoring receivables or buying foreign credit insurance