Makes all sales on credit and offers no cash discount

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Reference no: EM131539423

Gardner Company currently makes all sales on credit and offers no cash discount. The firm is considering offering a 2 2?% cash discount for payment within 15 days. The? firm's current average collection period is 60 60 ?days, sales are 40 comma 000 40,000 ?units, selling price is ?$ 45 45 per? unit, and variable cost per unit is ?$ 36 36. The firm expects that the change in credit terms will result in an increase in sales to 42 comma 000 42,000 ?units, that 70 70?% of the sales will take the? discount, and that the average collection period will fall to 30 30 days. If the? firm's required rate of return on? equal-risk investments is 25 25?%, should the proposed discount be? offered? (Note?: Assume a? 365-day year.)

Reference no: EM131539423

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