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Summer Energy Corporation has annual credit sales of $1,546,000 with credit terms of 60 days and an average collection period of 55 days with no
Summer Energy Corporation has annual credit sales of $1,546,000 with credit terms of 60 days and an average collection period of 55 days with no discount. To improve cash flow, the company is considering a change in collection policy by offering a 3% discount for payment in 30 days and estimate 80% of customers will take advantage of the discount They believe this discount will decrease their average collection period to 30 days. There is no change in sales as a result of the new policy and the company's short-term financing cost is 9.0%. Calculate inputs to determine the net change below. New Receivables ($) Old Receivables ($) Change in Receivables ($) Opportunity Cost (%) Impact on net income due to change in AR ($) Cost of Discount ($) Nef Effect of New Policy on Net Income ($) Should the company adopt the policy? Provide two strategies Summer Energy Corporation could adopt to improve collection times. (2 marks)
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