Joe Tulkin owns Tulkin Wholesale Co. He sells paper, tape, file folders, and other office supplies to
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Tulkin decides he should rethink his invoice terms. He knows he could change the percent rate on the cash discount, the number of days the discount is offered, or the number of days before the face amount is due. Changing any of these, or any combination, will change the interest rate at which a buyer is, in effect, borrowing money if he does not take the discount. Tulkin decides that it will be easier to evaluate the effect of different invoice terms if he sets up a spreadsheet to let him change the terms and quickly see the effective interest rate for each change.
a. With 90 percent of Tulkin’s customers now taking the discount, what is the total monthly cash discount amount?
b. If Tulkin changes his invoice terms to 1/5, net 20, what interest rate is each buyer paying by not taking the cash discount? With these terms, would fewer buyers be likely
to take the discount? Why?
c. Tulkin thinks 10 customers will switch to other wholesalers if he changes his invoice terms to 2/10, net 30, while 60 percent of the remaining customers will take the discount. What interest rate does a buyer pay by not taking this cash discount? For this situation, what will the total gross sales (total invoice) amount be? The total cash discount? The total net sales receipts after the total cash discount? Compare Tulkin’s current situation with what will happen if he changes his invoice terms to 2/10, net 30.
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Related Book For
Essentials of Marketing
ISBN: 978-0078028885
13th edition
Authors: William D. Perreault, Joseph P. Cannon
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