Question
Klein's Tools is considering offering a cash discount to speed up the collection of accounts receivable. Currently the firm has an average collection period of64
Klein's Tools is considering offering a cash discount to speed up the collection of accounts receivable. Currently the firm has an average collection period of64 days, annual sales are 31,000units, theper-unit price is $36, and theper-unit variable cost is $26. A 11% cash discount is being considered. Klein's Tools estimates that 85% of its customers will take the 11% discount. If sales are expected to rise to 33,000 units per year and the firm has a 17% required rate ofreturn, what minimum average collection period is required to approve the cash discountplan?
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