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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.)

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Expert Solution

As nothing was mentioned, all figures are rounded to 2 decimals. If need any change in rounding, let me know. Thank you


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