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Q2A) Credit Period Credit Sales = $24mn per year Credit Terms = net / 30 Profit...

Q2A) Credit Period

  • Credit Sales = $24mn per year
  • Credit Terms = net / 30
  • Profit Margin = 20%
  • Level of A/R = Credit Sales / Avg. Rec. Turnover, ARTO= 360 / Credit Period
  • Marketing Dept comes and says that if you increase net / 30 to net / 60 then sales will increase by $6 million.
  • Borrowing rate = 20%
  • What do you do?

Q2B) Discount

  • Sales = $24m
  • Credit Terms = 2/10, net/30
  • Borrowing rate = 17%
  • 30% customers will avail discount and 70% will not avail. Is this a viable proposition?
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