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Initiating a cash discount; a company is considering offering a3% discount for payment wit

Initiating a cash discount; a company is considering offering a3% discount for payment wit

Initiating a cash discount; a company is considering offering a3% discount for payment within 15 days, the current averagecollection period is 60 days. Sales are 40,000 units and theselling price is $47 per unit. Variable cost per unit is $36.Thefirm expects that the change in credit terms will result in anincrease in sales to 43,000 units. That 70% of the sales will takethe discount and average collection period will fall to 30 days. Ifthe firms required rate of return on equal-risk investments is 25%should the proposed discount be offered?

Abhinav 04-Dec-2019

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