Q.2 United Motors, manufacturers of motorcycle, currently makes all sales on credit and offers no cash discount. UM management is considering a 5% cash discount (5/10n/30) for payment within 10 days. The company's current averuge collection period is 40 days. Sales are 10,000 units, sale price per unit is $400 and variable cost per init is 5300 . Fixed operating posts are 5500,000 The management expects that change in terms of trade will result in increase in sales by 1,000 units. More importantly, the company's management expect that 50 percent of total sales will take the discount, and that average collection period will reduce to 30 doys. Furthermore, management expects that rate of bad debts will reduce from curreat level of 4 percent to 3 percent. If the firm's required rate of return on equal risk tnvestment is 15 percent, stiould the proposed discount be offered. As a student of linance, what do you suggest either the management of United Motors offer cash discount to its valuable customers or it should stay on its existing plan (Note: justify your arguments threugh nece:sary calculations, assume 360 days in a year). Mariss: 10