Crystals’. currently makes all sales on credit and offers no cash discount. The firm is considering a 3% cash discount for payment within 10 days. The firm's current average collection period is 90 days, sales are 400 art pieces per year, selling price is R25 000 per art piece, variable cost per item is R18 750, and the average cost per item is R21 000. The firm expects that the change in credit terms will result in a minor increase in sales of 10 items per year that 75% of the sales will take the discount, and the average collection period will drop to 30 days. The firm's bad debt expense is expected to become negligible under the proposed plan. The bad debt expense is currently 0.5% of sales. The firm's required return on equal-risk investments is 20%. (Assume a 360-day year). QUESTION 5 What are the savings of marginal bad debts under the proposed plan? 1. R500 000 2.R50 000 3.R10 000 4. R5000
Crystals’. currently makes all sales on credit and offers no cash discount. The firm is considering a 3% cash discount for payment within 10 days. The firm's current average collection period is 90 days, sales are 400 art pieces per year, selling price is R25 000 per art piece, variable cost per item is R18 750, and the average cost per item is R21 000. The firm expects that the change in credit terms will result in a minor increase in sales of 10 items per year that 75% of the sales will take the discount, and the average collection period will drop to 30 days. The firm's bad debt expense is expected to become negligible under the proposed plan. The bad debt expense is currently 0.5% of sales. The firm's required return on equal-risk investments is 20%. (Assume a 360-day year).
QUESTION 5
What are the savings of marginal
1. R500 000
2.R50 000
3.R10 000
4. R5000
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