Initiating a cash discount Gardner Company currently makes all sales on credit and offers no cash discount. The firm is considering offering a 22?% cash discount for payment within 15 days.
The firm's current average collection period is 60 days, sales are 40,000 units, selling price is ?$45 per? unit, and variable cost per unit is ?$36.
The firm expects that the change in credit terms will result in an increase in sales to 42,000 units, that 70?% of the sales will take the? discount, and that the average collection period will fall to 30 days.
If the? firm's required rate of return on? equal-risk investments is 25?%, should the proposed discount be? offered?
(Note?: Assume a? 365-day year.)
The amount of cost that will be saved due to the reduction in average? A/R is ?$________