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Warren Motor Company sells $6 million of its products to wholesalers on terms of "net 60."...

Warren Motor Company sells $6 million of its products to wholesalers on terms of "net 60." Currently, the firm's average collection period is 72 days. To speed up the collection of receivables, Warren is considering offering a cash discount of 2% if customers pay their bills within 15 days. The firm expects 25% of its customers to take the discount and its average collection period to decline to 62 days. The firm's required pretax return (i.e., opportunity cost) on receivables investment is 16%. Determine the net effect on Warren's pretax profits of offering a 2% cash discount. Should the firm proceed with the cash discount?

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