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Under both the existing credit terms and the new credit terms, calculate the following: Label answers ($ or %) and use commas as appropriate ($
Under both the existing credit terms and the new credit terms, calculate the following: Label answers (\$ or \%) and use commas as appropriate (\$ or \%). Current customer paying habits: 50 days Alternative: adopt 2/10,n/30 credit terms 1. What is the effective price? 2. What is the cost of product? 3. What is the credit cost? 4. What is the interest on the money? 5. What is the net profit? 6. Should the company maintain its current credit policy or offer the 2/10,n/30 credit terms? Should the company maintain its current credit policy in favor of the new 2/10,n/30 credit terms? (one word answer) Helpfu1 Hints: - Effective price: selling price net of any discounts - Credit cost: cost of financing the cost of the product until payment is received. - Formula to compute interest (i.e. credit cost or interest earned): principal x rate x time - Because rate is expressed as an annual interest rate, time must be expressed as a fraction of a year. For example, 10 days = 10/365
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