question archive 1)Fred Davis is a finance director of a large industrial products firm that offers a 2% discount for payment within 10 days
1)Fred Davis is a finance director of a large industrial products firm that offers a 2% discount for payment within 10 days
Subject:BusinessPrice: Bought3
1)Fred Davis is a finance director of a large industrial products firm that offers a 2% discount for payment within 10 days. The average collection period is 28 days and 30% of his customers take the discount. He contends that the discount should be dropped contending that the average collection would only increase to 30 days saving on all accounts taking the discount. However, the marketing manager estimates that sales would drop from 21,000 to 20,000 units. The firm has a 20 % required rate of return and if the selling price is $22 per unit with the average cost per unit is $20 at current sales volume and the variable cost is $17 per unit, should the firm discontinue the discount?
2.A firm has a total wage bill of $8million twice a month with a13% cost of capital. Calculate the benefit to the firm of changing to a monthly pay cycle and discuss the potential impact on the employees.
