Question 4

The company should expect to receive $91,700 in cash.

The present value of the receivables, calculated at a 9% discount rate, results in a cash amount of $91,700. This reflects the discounted value of the accounts receivable due to the interest charged by the factor.

A) $91,700

This option is correct because it accurately represents the present value of the factored accounts receivable after applying the 9% annual interest discount. The calculation of $100,000 multiplied by the discount factor of 0.917 gives $91,700, which is the amount the company will receive in cash.

B) $108,300

Option B is incorrect as it does not correspond to any logical calculation in the context of factoring receivables. The amount $108,300 exceeds the original value of the receivables and does not account for the discount applied, thus making it an unrealistic cash expectation.

C) $100,000

This option is also incorrect. It represents the full value of the accounts receivable without taking into account the discount for the one-year collection period. The company will not receive the full $100,000 since the factor discounts it to determine the present value.

D) $91,000

Option D is incorrect because it underestimates the present value of the receivables. The proper calculation yields $91,700, and thus $91,000 does not represent the accurate cash amount the company should expect to receive.

Conclusion

The correct answer is $91,700, as it precisely reflects the present value after applying the appropriate discount rate of 9% on the accounts receivable. All other options fail to accurately represent the cash amount the company can expect, either by not accounting for the discount or miscalculating the present value.