J. James Book Publishers is trying to decide whether to offer a 3% cash discount for payments
Question:
J. James Book Publishers is trying to decide whether to offer a 3% cash discount for payments made within 10 days, making its new terms 3/10, net 30. On average, its paying customers currently pay in 40 days under its present terms of net 30. A sales analyst estimates that sales will stay the same. The existing bad-debt loss rate is 3%; the rate under the new policy will be the same. It is estimated that 40% of J. James paying customers will continue to pay in 40 days, on average. The company s annual cost of capital is 10%. Annual sales will remain unchanged at $250 million, and the variable cost ratio will continue to be 60%. The variable expenses for credit administration and collections will drop from 5% to 4% if the cash discount is implemented.
What is the daily net present value of the new trade credit policy?
a. | $233,651.47 | |
b. | $18,500.57 | |
c. | $213,326.27 | |
d. | $77,465.37 |
Introduction to Accounting An Integrated Approach
ISBN: 978-0078136603
6th edition
Authors: Penne Ainsworth, Dan Deines