Question.

(a) Your supplier grants you credit terms of 2/10, net 35. What is the effective annualcost of the discount if you purchase $100 worth of merchandise?

(b) Your firm currently sells 215 units a month at a price of $90 a unit. You think you can increase your sales by an additional 45 units if you switch to a net 30 credit policy.

(i) The monthly interest rate is .5 percent and your variable cost per unit is $60. Should your firm switch policies? Why?

(ii) what is the minimum increase in crease in sales that would make the switch profitable?

Thank you in advance.