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"%, should the proposed discount be offered? (Not

"%, should the proposed discount be offered? (Not

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Dd.114.

Initiating a cash discount Gardner Company currently makes all sales on credit and offers no cash discount. The firm is considering offering a 3% 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 $44 per unit, and variable cost per unit is $34. The firm expects that the change in credit terms will result in an increase in sales to 41,000 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.).
Transcribed Image Text:Initiating a cash discount Gardner Company currently makes all sales on credit and offers no cash discount. The firm is considering offering a 3% 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 $44 per unit, and variable cost per unit is $34. The firm expects that the change in credit terms will result in an increase in sales to 41,000 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.).
The additional profit contribution from additional sales is The amount of cost that will be saved due to the reduction in average A/F IS The cost of extending the cash discount to customer is $ The net profit from the proposed cash discount is Should the proposed cash discount be offered? (Select the best answer below. No (Round to the nearest dollar.) (Round to the nearest dollar.) (Round to the nearest dollar.) (Round to the nearest dollar.)
Transcribed Image Text:The additional profit contribution from additional sales is The amount of cost that will be saved due to the reduction in average A/F IS The cost of extending the cash discount to customer is $ The net profit from the proposed cash discount is Should the proposed cash discount be offered? (Select the best answer below. No (Round to the nearest dollar.) (Round to the nearest dollar.) (Round to the nearest dollar.) (Round to the nearest dollar.)
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