4. The Chickee Corporation has a 12 percent opportunity cost of funds and currently sells on terms of net 10, EOM. This means that goods shipped before the end of the month must be paid for by the tenth of the following month.

The firm has sales of $10 million a year, which are 80 percent on credit and spread evenly over the year. Currently, the average collection period is 60 Chapter 15 Management of Accounts Receivable and Inventories 477 days. If Chickee offered terms of 2/10, net 30, 60 percent of its customers would take the discount, and the collection period would be reduced to 40 days. Should Chickee change its terms from net/10, EOM to 2/10, net 30?

(Assume a 360-day year.)