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Net advantage of implementing proposed discount policy

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Reference no: EM132683559

Hope Company presents the following information:

Annual credit sales = $25,200,000

Rate of return = 18%

Collection period = 3 months

Terms = n/30

The company is considering offering a 4/10, n/30 credit term. It anticipates that 30% of its customers will take advantage of the discount while sales would remain constant. The collection period is expected to decrease to two months.

Required:

What is the net advantage (disadvantage) of implementing the proposed discount policy?

(Explain/show solution.)

Reference no: EM132683559

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