Question
Mark Right Corporation had credit sales last year of $300,000 with terms of 30 days.As the company does not offer a discount for early payment
Mark Right Corporation had credit sales last year of $300,000 with terms of 30 days.As the company does not offer a discount for early payment the average collection period is 28 days.Management is looking to improve cash flow by changing the credit policy to 1/10, n/30.They estimate that 75% of customers will take advantage of the discount, reducing the average colleciton period to 15 days.The new discount is expected to increase sales by 5% (the profit margin will stay at the current 15%).The company will use any cash freed up to invest in bonds generating a return of 5%.Should the company adopt the policy?Support your answer by calculating the net change
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