Suppose that ABC Inc. switches to 3/10 net 30 from net 30. It is estimated that 80 percent of customers will take advantage of the discount, while the remaining 20 percent will pay on day 30. The price will increase from $52 to $53 per unit; unit sales will remain at 11,000 per year; and variable costs will remain at $25 per unit. Bad debt losses will not be affected. Assume a 40 percent tax rate and a 5 percent discount rate. Should the firm switch to the new policy?
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