Dizzy Animators, Inc

question 161

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 is the net result of increasing the cash discount?

• A) +$128,750
• B) -$58,750
• C) +$33,750
• D) -$33,750

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Definitions:

Dependent Variable

In research, this is a variable that is expected to change as a result of manipulation of the independent variable.

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Extreme weather phenomena that can cause significant damage and hazard, including hurricanes, tornadoes, thunderstorms, and hailstorms.

Covert Participant Observation

The form of participant observation wherein the observed individuals are not told that they are being studied.