BBB Ltd. has annual sales of $1mln (all credit, net 60) and an average collection period of 75 days. The company has changed the credit terms to 2/10 net 60 and now 60% of customers pay with the discount after 30 days while others pay after 80 days.

What is the effect of the change of the credit terms if:

pre-tax required rate of return is 12%

there are no bad debts

costs of goods sold are 80% of sales

and

a) sales level remains the same

b) sales level has increased by 2%?