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What was the expected net benefit of the cash discount

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Question - Power Generators Inc., had been selling its generator sets in Southern Philippine cities on credit and without cash discount. Its consultants recommended that the company give a 3 percent cash discount to customers who pay within 10 days and retain the present credit period of 30 days.

The company sold 400 generator sets per year. The selling price of each unit was P25,000.00 while the variable cost was P18,750.00. The average full cost per generator set was P21,000.00. Power Generators estimated that 75 percent of its customers would take advantage of the discount while the remaining 25 percent would take the full credit period. All other figures will remain the same. The required return on investment was 15 percent.

Required - What was the expected net benefit of the cash discount?

Reference no: EM133150843

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