12 Cash discounts Joe Tulldn owns Tulkin 'Wholesale Company. He sells paper, tape, le folders and other office supplies to about 13? retailers in nearby cities. His average retailer customer spends about 559% a month. When Tulkin started business in 1991, competing wholesalers were giving retailers invoice terms of Elli], net 31]. Tulldn never gave the issue much droughthe just used the same invoice temrs when he billed customers. At that time, about half his customers took the discount. Recently, he noticed a change in the way his customers were paying their bills. Checking his records, he found that EU per cent of the retailers were taking the cash discount. With so many retailers taking the cash discount, it seems to have become a price reduction. In addition, Tulldn learned that other wholesalers were changing their invoice terms. Tulkin decides he should rethink his invoice terms. l-le lmows he could change the percentage rate on the cash discount, the number of days the discount is offered, or the number of days before the face amount is due. Changing any of theseor any combination of themwill change the interest rate at which a buyer is, in effect, borrowing money if he or she does not take the discount. Tull-tin decides that it wl be easier to evaluate the effect of different invoice terms if he sets up a spreadsheet to let him change the terms and quickly see the effective interest rate for each change. [a] With El per cent of Tulkin's customers now taldng the discount, what is the total monthly cash discount amount? [b] If Tulldn changes his invoice terms to 15, net 20, what interest rate is each buyer paying by not taking the cash discount? 'With these terms, would fewer buyers be likely to take the discount? Why? [c] Tulkin thinks that 10 customers will switch to other wholesalers if he changes his invoice terms to Elli], net 30, while ED per cent of the remaining customers will take the discount. [i] 'What interest rate does a buyer pay by not taking this cash discount? [ii]For this situation, what will the total gross sales [total invoice] amount be? The total cash discount? The total net sales receipts after the total cash discount? Compare Tulkin's current situation with what will happen if he changes his invoice terms to Er'l, net 313