Nevergreen's standard terms on sales invoices are 30 days, but analysis has shown that on average customers pay on 45 days. Total sales revenue is £10,000,000 and the company expects irrecoverable receivables of £200,000. A suggestion has been made to offer a 5% discount to customers paying when ordering (i.e. O days). It is expected that 20% of customers will take advantage of this. Irrecoverable receivables would be expected to fall to £100,000 and administrative savings on credit control would amount to £50,000. The average number of days to pay for the remaining 80% of customers would be expected to increase to 50 days.
Nevergreen's standard terms on sales invoices are 30 days, but analysis has shown that on average customers pay on 45 days. Total sales revenue is £10,000,000 and the company expects irrecoverable receivables of £200,000. A suggestion has been made to offer a 5% discount to customers paying when ordering (i.e. O days). It is expected that 20% of customers will take advantage of this. Irrecoverable receivables would be expected to fall to £100,000 and administrative savings on credit control would amount to £50,000. The average number of days to pay for the remaining 80% of customers would be expected to increase to 50 days.
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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a) Based on the information provided should the suggested 5%
discount be offered?
Transcribed Image Text:Nevergreen's standard terms on sales invoices are 30 days, but
analysis has shown that on average customers pay on 45 days.
Total sales revenue is £10,000,000 and the company expects
irrecoverable receivables of £200,000.
A suggestion has been made to offer a 5% discount to customers
paying when ordering (i.e. O days). It is expected that 20% of
customers will take advantage of this. Irrecoverable receivables
would be expected to fall to £100,000 and administrative savings
on credit control would amount to £50,000. The average
number
of days to pay for the remaining 80% of customers would be
expected to increase to 50 days.
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