12. Clear Glass Company sells glass containers. It reported total sales of 1.58 million with 60% of the sales on credit. It takes 60 days to collect Accounts Receivables. The selling price is $20 per container. The board is currently investigating a change in the collection of AR that is expected to result in a 20% increase in credit sales but also a 10% increase in average collection period. No change in bad debt is expected. The firm’s opportunity cost on its investment in AR is 12%

a. Calculate the increase in sales if the change in collecting AR is implemented

b. Calculate the cost of the increase in AR

c. Would you recommend the plan? Explain?

Question 13. Pebbles & Stone Enterprises currently does not offer any discounts. In an attempt to speed up their collection, the board is considering offering a 5% discount for payment within 15 days [5/15 net 30]. Currently the average collection period is 60 days, sales are 30,000 units, selling price is $40 per unit. If the discount is implemented, it’s expected that sales will increase to 38,0000 units, 80% of sales will take the discount and the average collection period will fall to 30 days. The firm’s required rate of return is 10%. Should the proposed discount be offered?

Answer rating: 100% (QA)

Working notes Existing sales Credit sales Credit sales 1580000 60 948000 Accounts receivable days Av... View the full answer