Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Cost Management Measuring Monitoring And Motivating Performance

Authors: Leslie G. Eldenburg, Susan Wolcott, Liang Hsuan Chen, Gail Cook

2nd Canadian Edition

1118168879, 9781118168875

Students also viewed these Accounting questions