Problem:
Company X has credit sales of $144,000 yearly with credit terms of net 30 days, which is also the average collection period. Company X does not offer a discount for early payment, so it's customers take 30 days to pay.
If Company X offered a 2% discount for payment in 10 days and every customer took advantage, (using full sales of $144,000 to calculate receivables) the new average receivables would be?
Then Company X reduces its bank loan which costs 10% by the cash generated from reduced receivables, please help calculate what the net gain or loss is to the company and should it offer the discount?
Then assume the new trade terms of 2/10, net 30 will increase sales by 15%. If company X earns 20% before discounts, should it offer the discount?