Find the change in credit terms

Assignment Help Finance Basics

Reference no: EM1364431

Epstein Company, a wholesale distributor of jewelry, sells to retail jewelry stores on terms of "net 120." Its average collection period is 150 days. The company is considering the introduction of a 4 percent cash discount if the customer pays within 30 days. Such a change in credit terms is expected to reduce the average collection period to 108 days. Epstein expects 30 percent of its customers to take the cash discount. Annual credit sales are $6 million. Epstein's variable cost ratio is 0.667, and its required pretax return on receivables investment is 15 percent. The company does not expect its inbventory level to change as a result of the change in credit terms. Determine the following:

a. The funds released by the change in credit terms
b. The net effect on Epstein's pretax profits.

Reference no: EM1364431

Questions Cloud

Professionalism in the workplace : As a supervisor, how should you handle two employees whose friendship has turned negative and is creating a problem for work productivity?

What are the five major kind of capital : Which of the following are flows. If a flow, which of the five major kind(s) of capital does it increase or decrease.

Employment record retention and tax software : What employment records are important to keep? Why?

How can policy makers perfect their craft : Describe how policy makers can perfect their craft for the betterment of society -How can policy makers perfect their craft?

Find the change in credit terms : Epstein Corporation, a wholesale distributor of jewelry, sells to retail jewelry stores on terms of "net 120." Its average collection period is 150 days. The company is considering the introduction of a 4% cash discount if the customer pays within th..

Explain absolute- and relative-rating approaches : Explain Does this difference between the absolute- and relative-rating approaches mean that one of the methods

Performance-enhancing drugs in sports : Please provide some best practices for writing a quality thesis statement and then create a thesis statement for the following topic: performance-enhancing drugs in sports.

Analyze the risks in the systems : Analyze the risks in the systems that your team analyzed. Identify all risks and internal control points by incorporating the controls and risks into the flowcharts.

Individuals or parties may need to agree to disagree : List several basic concepts one should consider when dealing with conflict at work. If the conflict is negatively affecting your job performance, what steps should you take?

User Account

All Pages