Pinkertons has credit sales of $550,000 yearly with customers paying on average in 65 days. Pinkertons does not currently offer a discount for early payment.

Required:

1. What is the average receivables balance?
2. Assume Pinkertons offers new trade terms of 1/10, Net 30. All customers take the discount and pay in 10 days, and sales increase by 12 percent as a result of this discount incentive. If Pinkertons earns 25 percent on sales (before discounts) and can reduce their 2% bank loan due to the early payments, should they offer these new discount terms? Support your answer with all relevant calculations.