Question
Monarchs Enterprise currently do not offer any cash discounts and sell on credit only. In an attempt to increase sales, the board is considering offering
Monarchs Enterprise currently do not offer any cash discounts and sell on credit only. In an attempt to increase sales, the board is considering offering a 10% discount for payment within 7 days. Currently, the average collection period is 30 days, sales are 30,000 units, selling price is $50 per unit, and variable cost per unit is $25. If the discount is implemented, it is expected that sales will increase to 36,000 units, that 90% of sales will take the discount, and the average collection period will fall to 10 days. The firm's required rate of return is 10%. What is the net benefit/loss from implementing the proposed plan? Note, assume a 365-day year.
a.
-$8,301
b.
$24,986
c.
-$26,301
d.
-$15,699
e.
-$12,000
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