Hope Company presents the following information:

Annual credit sales = $25,200,000

Rate of return = 18%

Collection period = 3 months

Terms = n/30

The company is considering offering a 4/10, n/30 credit term. It anticipates that 30% of its customers will take advantage of the discount while sales would remain constant. The collection period is expected to decrease to two months.

Required:

What is the net advantage (disadvantage) of implementing the proposed discount policy?

(Explain/show solution.)