Cash Discounts versus Notes Receivable Both Torn Building Materials and Grim Steel Products make a majority of their sales to companies that build office buildings.

The companies typically do not receive payment on sales for at least 6 months from the date of billing and have adopted different pricing and cash collection strategies. Torn prices its products at a higher dollar amount and grants a substantial cash discount if payment is received within 90 days. Grim prices its products at a lower dollar amount, but requires customers to sign a note receivable and began paying interest for any days the payment is delayed beyond 90 days. On January 1, 2000, the companies purchased products for $400,000 and sold them to customers on the same day. Torn sold its products for $500,000 and offered a cash discount of 6/90, net 180. Grim sold its products for $460,000, but with a requirement that if the sale price is not paid within 90 days the customer must sign a note payable with an annual interest rate of 16 percent.

a. If both companies collect their receivables on March 28, 2000, which company would receive the larger payment?

By what amount?

b. If both companies collect their receivables on June 30, 2000, which company would receive the larger payment?

By what amount?

c. If both companies collect their receivables on December 31, 2000, which company would receive the larger payment? By what amount?