J. James Book Publishers is trying to decide whether to offer a 3% cash discount for payments made within 10 days, making its new terms 3/10, net 30. On average, its paying customers currently pay in 40 days under its present terms of net 30. A sales analyst estimates that sales will stay the same. The existing bad-debt loss rate is 3%; the rate under the new policy will be the same. It is estimated that 40% of J. James paying customers will continue to pay in 40 days, on average. The company s annual cost of capital is 10%. Annual sales will remain unchanged at $250 million, and the variable cost ratio will continue to be 60%. The variable expenses for credit administration and collections will drop from 5% to 4% if the cash discount is implemented.

What is the daily net present value of the current trade credit policy?

	a.	$75,944.43
	b.	$232,672.53
	c.	$17,679.23
	d.	$212,347.33

What is the daily net present value of the new trade credit policy?

	a.	$233,651.47
	b.	$18,500.57
	c.	$213,326.27
	d.	$77,465.37

What is the 1-day change in value related to the new trade credit policy?

	a.	$1,520.87
	b.	$978.94
	c.	-$$2,571.51
	d.	$821.34

What is the change in daily net present value related to the new trade credit policy?

	a.	$2,287,575.32
	b.	$1,725,699.97
	c.	$4,625,964.45
	d.	$3,573,137.41

Do you recommend that J. James initiate the new trade credit policy?

	a.	Indifferent.
	b.	Unable to decide.
	c.	No.
	d.	Yes.

What is the optimal cash discount percent for J. James?

	a.	0.4092%
	b.	0.5653%
	c.	0.1689%
	d.	0.2791%