Initiating a cash discount   Gardner Company currently makes all sales on credit and offers no cash discount. The firm is considering offering a 2​% cash discount for payment within 15 days. The​ firm's current average collection period is 60 ​days, sales are 40,000 ​units, selling price is ​$46 per​ unit, and variable cost per unit is ​$35. The firm expects that the change in credit terms will result in an increase in sales to 45,000 ​units, that 70​% of the sales will take the​ discount, and that the average collection period will fall to 30 days. If the​ firm's required rate of return on​ equal-risk investments is 10​%, should the proposed discount be​ offered?   ​(Note​: Assume a​ 365-day year.)

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
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Initiating a cash discount   Gardner Company currently makes all sales on credit and offers no cash discount. The firm is considering offering a

2​%

cash discount for payment within 15 days. The​ firm's current average collection period is

60

​days, sales are

40,000

​units, selling price is

​$46

per​ unit, and variable cost per unit is

​$35.

The firm expects that the change in credit terms will result in an increase in sales to

45,000

​units, that

70​%

of the sales will take the​ discount, and that the average collection period will fall to

30

days. If the​ firm's required rate of return on​ equal-risk investments is

10​%,

should the proposed discount be​ offered?  

​(Note​:

Assume a​ 365-day year.)

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