Question
In: Finance
Initiating a cash discount Gardner Company currently makes all sales on credit and offers no cash...
Initiating a cash discount Gardner Company currently makes all sales on credit and offers no cash discount. The firm is considering offering a 33% 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 $47 per unit, and variable cost per unit is $31. The firm expects that the change in credit terms will result in an increase in sales to 43,000 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.)
Solutions
Expert Solution
As nothing was mentioned, all figures are rounded to 2
decimals. If need any change in rounding, let me know. Thank
you
jeff jeffy answered 1 year agoRelated Solutions
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discount for payment within 10 days. The firm's current average
collection period is 90 days, sales are 2,500 puzzles per year,
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are collectible, 60% are collected in the month of sale; the
remaining 40% are...
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