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BUP Ltd has annual sales of K20million. Customers currently take credit as follows: Days %'age 30 20% 60 50% 90 30% I BUP Ltd is considering offering a discount of 1% for payment within 30 days. It is estimated that 60% of customers will take advantage of the discount (and that the remainder will take a full 90 days). The company's bank overdraft rate is 15% p.a. Assume 365 days in a year. i) Calculate the net cost or benefit of the change of policy. ii) Should they offer the discount?

BUP Ltd has annual sales of K20million. Customers currently take credit as follows: Days %'age 30 20% 60 50% 90 30% I BUP Ltd is considering offering a discount of 1% for payment within 30 days. It is estimated that 60% of customers will take advantage of the discount (and that the remainder will take a full 90 days). The company's bank overdraft rate is 15% p.a. Assume 365 days in a year. i) Calculate the net cost or benefit of the change of policy. ii) Should they offer the discount?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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BUP Ltd has annual sales of K20million. Customers currently take credit as follows: Days %'age 30 20% 60 50% 90 30% I BUP Ltd is considering offering a discount of 1% for payment within 30 days. It is estimated that 60% of customers will take advantage of the discount (and that the remainder will take a full 90 days). The company's bank overdraft rate is 15% p.a. Assume 365 days in a year. i) Calculate the net cost or benefit of the change of policy. ii) Should they offer the discount?
Transcribed Image Text:BUP Ltd has annual sales of K20million. Customers currently take credit as follows: Days %'age 30 20% 60 50% 90 30% I BUP Ltd is considering offering a discount of 1% for payment within 30 days. It is estimated that 60% of customers will take advantage of the discount (and that the remainder will take a full 90 days). The company's bank overdraft rate is 15% p.a. Assume 365 days in a year. i) Calculate the net cost or benefit of the change of policy. ii) Should they offer the discount?
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