1. Gardner Company currently makes all sales on credit and offers no cash discount. The firm is considering offering a 4 percent 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 $47 per unit, and variable cost per unit is 33$. The firm expects that the change in credit terms will result in an increase in sales to 44,000 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 10%, should the proposed discount be offered? (Note: Assume a 365-day year.)

The additional profit contribution from additional sales is $ ______. (Round to the nearest dollar.)

2. A firm is contemplating shortening its credit period from 40 to 30 days and believes that, as a result of this change, its average collection period will decline from 47 to 37 days. Bad-debt expenses are expected to decrease from 1.5% to 0.9% of sales. The firm is currently selling 11,600 units but believes that as a result of the proposed change, sales will decline to 9,500 units. The sale price per unit is $58, and the variable cost per unit is $47.The firm has a required return on equal-risk investments of 11.4%. Evaluate this decision, and make a recommendation to the firm.

(Note: Assume a 365-day year.)

The reduction in profit contribution from a decline in sales is $_____.

(Round to the nearest dollar. Enter as a negative number.)

3.Parker Tool is considering lengthening its credit period from 30 to 60 days. All customers will continue to pay on the net date. The firm currently bills $420,000 for sales and has $300,000 in variable costs. The change in credit terms is expected to increase sales to $520,000. Bad-debt expenses will increase from 1% to 1.5% of sales. The firm has a required rate of return on equal-risk investments of 20%.

(Note:Assume a 365-day year.)

a.What additional profit contribution from sales will be realized from the proposed change?

b.What is the cost of the marginal investment in accounts receivable?

c.What is the cost of the marginal bad debts?

d.Do you recommend this change in credit terms?