Question 1 Gomez Electric at present offers its customers 30 days credit. Half of the customers, by value, pay on time. The other half takes an average of 70 days to pay. The business is considering offering a cash discount of 2% to its customers for payment within 30 days. The credit controller anticipates that half of the customers who now take an average of 70 days to pay (i.e. 25% of all customers) will pay in 30 days. The other half will still take an average of 70 days to pay. The scheme will also reduce bad debts by 300,000 a year. Annual sales revenue of 365 million is made evenly throughout the year. At present the business has a large overdraft (60 million) with its bank at an interest cost of 12% a year. Required: a. How much will the scheme cost the business in discounts? c. Should the business go ahead with the scheme (taking into account all possible costs and benefits)? Show your workings. d. Advise Gomez on what other techniques (other than the scheme considered) it could implement to reduce the time taken for customers to pay.