Discount will make the firms price competitive

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Dome Metals has credit sales of $180,000 annual with credit terms of next 60 days, which is also the average collection period. Suppose the firm adopts new credit terms of 3/18, net 60 and all customers pay on the last day of the discount period. Any reduction in accounts receivable will be used to reduce the firm's bank loan which costs 12 %. The new credit terms will increase sales by 15 % because the discount will make the firm's price competitive.

Reference no: EM13686838

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