XYZ Corporation has a 10% opportunity cost of funds. The firm has sales of $20 million a year, which are 80% on credit and spread evenly over the year. The average collection period is currently 60 days. If XYZ offered terms of 2/10, net 60, 60% of its credit sales customers will take the discount.

1.What would be the average collection period, if 60% of its credit sales customers will take the discount?

2.What is the current level of the accounts receivable?

3.What is the annual return (yield) for the customers who take the discount? (nominal rate assuming 360 days a year)