Dizzy Animators, Inc

question 255

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 cost of the marginal cash discount?

• A) $230,625
• B) $768,750
• C) $300,000
• D) $307,500

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Definitions:

Keratin

A type of protein found in hair, nails, and the outer layer of skin, responsible for protecting these structures.

Epidermis

The outermost layer of skin that provides a waterproof barrier and creates our skin tone.

Dermis

The thick layer of living tissue below the epidermis, containing nerves, blood vessels, sweat glands, and hair follicles.

Subcutaneous

Pertaining to or situated under the skin, often referring to the layer of tissue where fat is stored and where certain medications may be injected.