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:

1. Calculate the net profit for each company.

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

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

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