Net present value of Company V’s credit policy and to discuss the factors to be considered before changing the policy.

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Chapter 30, Problem 17PS

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To determine: Net present value of Company V’s credit policy and to discuss the factors to be considered before changing the policy.

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Grunewald Industries sells on terms of 1/10, net 40. Gross sales last year were $4,453,000 and accounts receivable averaged $427,000. Half of Grunewald's customers paid on the 10th day and took discounts. What are the nominal and effective costs of trade credit to Grunewald's nondiscount customers? (Hint: Calculate daily sales based on a 365-day year, calculate the average receivables for discount customers, and then find the DSO for the nondiscount customers.) Do not round intermediate calculations. Round your answers to two decimal places.

Taylor Company provides the following information: Annual credit sales : $ 24,000,000Collection period : 3 monthsTerms : net/30Rate of return : 18% The company is considering changing the credit discount policy to 4/10, net 30. The company anticipates that thirty percent of consumers will take the discount. The receivable collection period is expected to be reduced to 2 months. Should the discount policy be implemented? Explain with calculations.

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