A company currently makes all sales on credit and offers no cash discount. The firm is considering a 2 percent cash discount for payment within 10 days. The firms current average collection period is 36 days, sales are 40000 units per year, selling price is $25 per unit, and variable cost is $20 per unit. The firm expects that the change in credit terms will result in a minor increase in sales of 5000 units per year that 80% of the sales will take the discount, and the average collection period will drop to 24 days. The firms bad debt expense is expected to have no change under the proposed plan. The firms required return on equal-risk investments is 10%. (Year = 360 days)

1) What is the firms additional profit contribution from sales under the proposed plan of initiating the cash discount?

2) The total variable cost of annual sales under the present (without discount):

3) Turnover of accounts receivable under present plan (without discount):

4) Average investment in accounts receivable under present plan (without discount):

5) The total variable cost of annual sales under the proposed (with discount):

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