Dome Metals has credit sales of $180,000 yearly with credit terms of net 60 days, which is also the average collection period. Dome offered a 3 percent discount for payment in 18 days, and Dome reduced its bank loans, which cost 12 percent. Assume that the new trade terms of 3/18, net 60 will increase sales by 15 percent because the discount makes the Dome’s price competitive. If Dome earns 20 percent on sales before discounts, what will be the net change in income? Should it offer the discount?
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