Initiating an early payment discount Gardner Company currently makes all sales on credit and offers no discount. The firm is considering offering a 5% discount for payment within 30 days. The firm's current average collection period is 60 days, sales are 40,000 units per month, selling price is $48 per unit, and variable cost per unit is $30. The firm expects that the change in credit terms will result in an increase in sales to 41,000 units, that 70% of the customers (and 70% of the dollar volume of sales) will take the discount and pay on day 30, and the other customers will continue to pay the full invoice on day 60. The company's cost of capital is 0.5% per month. Should it offer the discount? (Note: Assume a 365-day year.) *** The additional profit contribution from additional sales is $ (Round to the nearest dollar)
Initiating an early payment discount Gardner Company currently makes all sales on credit and offers no discount. The firm is considering offering a 5% discount for payment within 30 days. The firm's current average collection period is 60 days, sales are 40,000 units per month, selling price is $48 per unit, and variable cost per unit is $30. The firm expects that the change in credit terms will result in an increase in sales to 41,000 units, that 70% of the customers (and 70% of the dollar volume of sales) will take the discount and pay on day 30, and the other customers will continue to pay the full invoice on day 60. The company's cost of capital is 0.5% per month. Should it offer the discount? (Note: Assume a 365-day year.) *** The additional profit contribution from additional sales is $ (Round to the nearest dollar)
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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Transcribed Image Text:Initiating an early payment discount Gardner Company currently makes all sales on credit and offers no discount.
The firm is considering offering a 5% discount for payment within 30 days. The firm's current average collection
period is 60 days, sales are 40,000 units per month, selling price is $48 per unit, and variable cost per unit is $30.
The firm expects that the change in credit terms will result in an increase in sales to 41,000 units, that 70% of the
customers (and 70% of the dollar volume of sales) will take the discount and pay on day 30, and the other customers
will continue to pay the full invoice on day 60. The company's cost of capital is 0.5% per month. Should it offer
the discount? (Note: Assume a 365-day year.)
K
The additional profit contribution from additional sales is $ (Round to the nearest dollar)
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