Juniper Landscaping Ltd. expects to have sales this year of $15 million under its current credit policy.
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Question:
Juniper Landscaping Ltd. expects to have sales this year of $15 million under its current credit policy. The present terms are net 30; the actual DSO is 35 days, and the bad debt is 4% sales. Juniper Landscaping wants to improve its profitability, a proposal has been made to offer a 1% discount for payment within 10 days; that is, change the credit terms to 1/10, net 30. Sales would increase by $500,000 and 50% of all customers would take the discount. The new DSO would be 25 days, and the bad debt loss percentage on all sales would fall to 2%. What would be the discount cost to Juniper Landscaping if they change their credit policy?
| $77,500 |
| -$54,380 |
| $75,000 |
| $112,500 |
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