Three companies have adopted different approaches to extending credit facilities to their customers as follows:

Company A does not give any credit whatsoever and requires payment on delivery (cash on delivery), for which it offers a 1% discount. Company B offers a 30-day credit period and receives payments on time, while Company C offers the same 30-day credit terms, but its customers normally take 90 days to pay. However, Company C charges interest of 12% per annum on late payments.

All three companies have annual sales of 60,000 and a net profit margin (before credit costs) of 5%.

The companies finance their operations with money from their overdraft facility at a cost of 12% per annum.

You are required to:

a) Calculate the net profit for each company.

b) Calculate a revised profit figure for Company A, if it does not offer any prompt payment discount.

c) Calculate a revised profit figure for Company C, if it stops charging its customers interest on their late payments.

d) Comment on your results (original and revised profit) explaining the preferred company.

Three companies have adopted different approaches to extending credit facilities to their customers as follows:

Company A does not give any credit whatsoever and requires payment on delivery (cash on delivery), for which it offers a 1% discount. Company B offers a 30-day credit period and receives payments on time, while Company C offers the same 30-day credit terms, but its customers normally take 90 days to pay. However, Company C charges interest of 12% per annum on late payments.

All three companies have annual sales of 60,000 and a net profit margin (before credit costs) of 5%.

The companies finance their operations with money from their overdraft facility at a cost of 12% per annum.

You are required to:

a) Calculate the net profit for each company.

b) Calculate a revised profit figure for Company A, if it does not offer any prompt payment discount.

c) Calculate a revised profit figure for Company C, if it st