Calculate the annual cost of offering

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Reference no: EM133274445

Computation: 

Solve the problem below and show your solution.

Answer in % with 2 decimal places

1. A company offers its customers 45 days credit but, at present, customers are taking an average of 50 days credit. In order to speed up cash collection, the company is introducing a 2% discount for payment within 10 days. The company finances its working capital requirement using an overdraft at an annual cost of 18%.

Required:

Calculate the annual cost of offering the discount and evaluate whether or not the discount should be offered.

2. A company offers its customers 45 days credit but, at present, customers are taking an average of 60 days credit. In order to speed up cash collection, the company is introducing a 1% discount for payment within 15 days. The company finances its working capital requirement using an overdraft at an annual cost of 13%.

Required:

Calculate the annual cost of offering the discount and evaluate whether or not the discount should be offered.

Reference no: EM133274445

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