Dizzy Animators, Inc

question 53

Multiple Choice

Dizzy Animators, Inc. currently makes all sales on credit and offers no cash discount. The firm is considering a 3 percent cash discount for payment within 10 days. The firm's current average collection period is 90 days, sales are 400 films per year, selling price is $25,000 per film, variable cost per film is $18,750 per film, and the average cost per film is $21,000. The firm expects that the change in credit terms will result in a minor increase in sales of 10 films per year, that 75 percent of the sales will take the discount, and the average collection period will drop to 30 days. The firm's bad debt expense is expected to become negligible under the proposed plan. The bad debt expense is currently 0.5 percent of sales. The firm's required return on equal-risk investments is 20 percent
-What are the savings of marginal bad debts under the proposed plan? (See Figure 14.6)

• A) $10,000
• B) $500,000
• C) $50,000
• D) $5,000

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Definitions:

Retailer

A business or person that sells goods to consumers, typically in small quantities and through a storefront, online platform, or other direct-to-consumer channels.

Provide Follow-up

The act of continuing communication or action with a customer or client after an initial interaction, sale, or service to ensure satisfaction, address concerns, or encourage future business.

Sales Presentations

Structured demonstrations or talks aimed at showcasing a product's features and benefits to persuade potential customers to make a purchase.

Customer Service

Activities and initiatives designed to support customers by providing helpful information and addressing their concerns or inquiries.