Should the firm offer the cash discount

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Additionally, BB offers its credit customers terms of net 30. However, it is considering changing the terms to 20/10 net 30 in an attempt to reduce the amount of time it takes to collect its accounts receivable. The firm believes this change alone would decrease the average collection period by five days. BB also expects that 63% of its customers will elect to pay within the discount period and that the increased attractiveness of the terms will increase sales by 1% a year. It is not expected that bad debts will change from the current level of 0% as a result of this change in terms. BB’s opportunity cost of funds invested in accounts receivable is 10%. Should the firm offer the cash discount? Explain. Evaluate this scenario separately from the one described in part d.

Reference no: EM132081773

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