Ghazal Company currently makes all sales on credit and offers no cash discount. The firm is considering

Question:

Ghazal Company currently makes all sales on credit and offers no cash discount. The firm is considering offering a 2 percent 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 US$45 per unit, and variable cost per unit is US$36. The firm expects that the change in credit terms will result in an increase in sales to 42,000 units, that 70 percent 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 25 percent, should the proposed discount be offered?

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  answer-question

Principles of Managerial Finance

ISBN: 978-1408271582

Arab World Edition

Authors: Lawrence J. Gitman, Chad J. Zutter, Wajeeh Elali, Amer Al Roubaix

Question Posted: