Eaglet Company has a 12 percent opportunity cost of funds and currently sells on terms of net/10, EOM. The company has sales of ₱10 million a year, which are 80 percent on credit and spread evenly over the year. The average collection period is currently 60 days. If Eaglet Company offered terms of 2/10, n/30 customers representing 60 percent of its credit sales would take the discount and the average collection period would be reduced to 40 days. Should Eaglet Company change its terms from net/10, EOM to 2/10, n/30? Why?

Eaglet Company has a 12 percent opportunity cost of funds and currently sells on terms of net/10, EOM. The company has sales of ₱10 million a year, which are 80 percent on credit and spread evenly over the year. The average collection period is currently 60 days. If Eaglet Company offered terms of 2/10, n/30 customers representing 60 percent of its credit sales would take the discount and the average collection period would be reduced to 40 days. Should Eaglet Company change its terms from net/10, EOM to 2/10, n/30? Why?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 32P

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