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Entity B's current sales on credit: 28,240 Collection period: 3 months Market interest rate: 25% The company is considering to apply the 6/7 net 30 policy due to the excessive competition in the sector. It is estimated that 45% of customers can take advantage of this situation and the collection period will be reduced to 1.5 months. 1) What is the additional cost of the cash discount to the firm? a) 1,212,1 b) 1,199.9 c) 2,666.4 d) 762.5 e) 856.7 2) What is the additional benefit of the cash discount? 3) Should the entity apply the cash discount or not

Entity B's current sales on credit: 28,240 Collection period: 3 months Market interest rate: 25% The company is considering to apply the 6/7 net 30 policy due to the excessive competition in the sector. It is estimated that 45% of customers can take advantage of this situation and the collection period will be reduced to 1.5 months. 1) What is the additional cost of the cash discount to the firm? a) 1,212,1 b) 1,199.9 c) 2,666.4 d) 762.5 e) 856.7 2) What is the additional benefit of the cash discount? 3) Should the entity apply the cash discount or not

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
Problem 1PS
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Entity B's current sales on credit: 28,240
Collection period: 3 months
Market interest rate: 25%
The company is considering to apply the 6/7 net 30 policy due to the excessive competition in the sector. It is estimated that 45% of customers can take advantage of this situation and the collection period will be reduced to 1.5 months.

1) What is the additional cost of the cash discount to the firm?
a) 1,212,1
b) 1,199.9
c) 2,666.4
d) 762.5
e) 856.7

2) What is the additional benefit of the cash discount?

3) Should the entity apply the cash discount or not?

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