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A firm generates annual sales of $27M, with variable costs equal to 70% of sales. The...

A firm generates annual sales of $27M, with variable costs equal to 70% of sales. The firm has an average collection period of 35 days, which it can shorten to 30 days by offering a cash discount of 1% for early payment. It costs the firm 16% per year to finance its capital investment in the cash conversion cycle. Should the firm offer the discount if it expects that every year 60% of customers will take advantage of it and bad debt expense would increase by $150,000? Support your answer with relevant computations.

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