Should the proposed discount be offered

Assignment Help Financial Management

Reference no: EM131926803

Initiating a cash discount Gardner Company currently makes all sales on credit and offers no cash discount. The firm is considering offering a 22?% cash discount for payment within 15 days.

The firm's current average collection period is 60 days, sales are 40,000 units, selling price is ?$45 per? unit, and variable cost per unit is ?$36.

The firm expects that the change in credit terms will result in an increase in sales to 42,000 units, that 70?% of the sales will take the? discount, and that the average collection period will fall to 30 days.

If the? firm's required rate of return on? equal-risk investments is 25?%, should the proposed discount be? offered?

(Note?: Assume a? 365-day year.)

The amount of cost that will be saved due to the reduction in average? A/R is ?$________

Reference no: EM131926803

Questions Cloud

What would be the mathematical grounds for disregarding : Suppose that you develop a momentum strategy on a futures contract. What would be the mathematical grounds for disregarding the second result, if any?

What is the key to avoiding selection bias : What if we split the dataset in three sets: training, validation, and testing? What is the key to avoiding selection bias?

Why does shuffling defeat the purpose of k-fold cv : Why is shuffling a dataset before conducting k-fold CV generally a bad idea in finance? Why does shuffling defeat the purpose of k-fold CV in financial dataset?

What can you conclude about productivity improvement : Last year, Chop-M-Up, Inc. implemented a new labor process and redesigned its product, hoping to increase input usage efficiency.

Should the proposed discount be offered : The firm's current average collection period is 60 days, sales are 40,000 units, selling price is $45 per unit, and variable cost per unit is $36.

What break date does the method select : Compute the SDFC (Chow-type) explosiveness test. What break date does this method select? Is this what you expected?

Calculate what the annual payments and interest charges : The market discount rate is assumed to be 6%. Beyond this initial tabulation, estimate the present worth of the annual payments.

What is the annual equivalent cost for the truck : Maintenance is estimated to be a uniform gradient amount of $156 per year, with zero dollar for first year maintenance.

What is the sensitivity of sr change in each parameter : What is the sensitivity of SR to a 1% change in each parameter? Does changing any of the parameters in exercise 1 impact the others?

User Account

All Pages