Problem
Atlantis Company makes all its sales on credit and does not offer any discounts for prompt payment. The company evaluates discounts for early payment of 1.5% to be paid in 14 days. The company's current average collection period is 45 days, sales are 50,000 units, the selling price is $50 per unit, and the variable cost per unit is $35. The company expects that the change in credit terms will increase the company's sales to 55,000 units, that 60% of sales will accept the discount, and that the average collection period will decrease to 30 days. If the firm's required rate of return on risky investments is 25%, should the proposed discount be offered?