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Determine should the company adopt the policy

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Reference no: EM132520616

Pipers Signs wants to improve its collections of accounts receivable. They are considering changing their credit policy from net 30 to 2/10 net 30. If they make this change, they assume the following will occur:

  1. 90% of customers will take advantage of the new discount
  2. Overall sales will increase from $2,000,000 to $2,200,000
  3. Overall profit margin will stay constant at 25% of sales
  4. 1% of sales will become bad debt. Currently they have no bad debts.
  • Pipers can earn 18% on any funds freed up by the change.

Question 1: Should the company adopt the policy? Support your answer by calculating the net change.

Reference no: EM132520616

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