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Question 4. The Acme Aglet Corporation has a 12 percent opportunity cost of funds and currently sells on terms of net/10, EOM. (This means that
Question 4. The Acme Aglet Corporation has a 12 percent opportunity cost of funds and currently sells on terms of "net/10, EOM." (This means that goods shipped before the end of the month must be paid for by the tenth of the following month.) The firm has sales of $10 million a year, which are 80 percent on credit and spread evenly over the year. The average collection period is currently 60 days. If Acme offered terms of "2/10, net 30," customers representing 60 percent of its credit sales would take the discount, and the average collection period would be reduced to 40 days. Should Acme change its terms from "net/10, EOM" to "2/10, net 30"? Why
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