Problem:
ABC Inc sells goods on terms of net 40. The store's average monthly sales (all on credit) are $70,000. ABC pledges all of its receivables to the bank, which advances 80% of the face value of the receivables at a rate of 2.5% above prime. The bank also charges a 1% processing fee on all receivables pledged. ABC borrows the full amount possible, and the current prime rate is 5%.
Required:
Question: What is the annual percentage rate (APR) of using this source of financing for one full year?
Note: Explain in detail.