Should nwt change its credit terms

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Reference no: EM131535560

Next Week’s Technology (NWT) is evaluating whether to change its credit terms from 2/10, net 30 to 3/10, net 30. At present, 50 percent of NWT’s sales are paid on Day 10, whereas, under the new terms, 60 percent of sales will be paid on Day 10. Regardless of the credit terms, half of the customers who do not take the discount are expected to pay on Day 30, whereas the remainder will pay 15 days late (no bad debts exist). But, as a result of the higher cash discount offered with the new terms, sales are expected to increase from $360,000 to $396,000 per year. NWT’s variable cost ratio is 80 percent and its cost of funds is 9 percent. All production costs are paid on the day of the sale. Should NWT change its credit terms?

Reference no: EM131535560

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