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.)
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
Section: Chapter Questions
Problem 1PS
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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
10%,
should the proposed discount be offered?
(Note:
Assume a 365-day year.)
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