Which credit terms should the cfo recommend

Reference no: EM131394290

The CFO of JJ's Jungle Equipment has decided that the company must sell its products on credit. As a result, she is evaluating two credit terms. (1) Net 45, which would generate $50,000 in annual sales and have an average collection period (DSO) equal to 55 days. (2) Net 30, which would generate $48,000 in sales and have an average collection period equal to 36 days. The firm's variable cost ratio is 70 percent, and its average cost of funds 14 percent. Which credit terms should the CFO recommend? Assume all operating costs are paid when inventory is sold and all sales are collected at the DSO.

Reference no: EM131394290

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