Yen Corporation will be relaxing its credit policy. Under he old policy of 2/10, n/25, sales total P5,000,000. Around 40% take the discount while the remainder pay on the 25th day. The proposed policy is 3/10, n/40. The increase in the cash discount and the payment term will like result to a P6,000,000 sales. This is expected to result to average days in receivables of 26.5 days (45% will be settled on the 10h day and the remainder on the 40h day). Variable cost rate will remain at 75%. The weighted average cost of capital is 15%. Using a 360-day year, how much is the annual net benefit/cost of this change?
Yen Corporation will be relaxing its credit policy. Under he old policy of 2/10, n/25, sales total P5,000,000. Around 40% take the discount while the remainder pay on the 25th day. The proposed policy is 3/10, n/40. The increase in the cash discount and the payment term will like result to a P6,000,000 sales. This is expected to result to average days in receivables of 26.5 days (45% will be settled on the 10h day and the remainder on the 40h day). Variable cost rate will remain at 75%. The weighted average cost of capital is 15%. Using a 360-day year, how much is the annual net benefit/cost of this change?
Chapter18: The Management Of Accounts Receivable And Inventories
Section: Chapter Questions
Problem 10QTD
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