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:

Individualistic Cultures

Cultures that emphasize the goals, needs, and views of the individual over those of the group.

Authority Ranking

A form of social hierarchy where individuals are ranked in a linear order, with each person's status determined by their position in the hierarchy.

Equality Matching

A type of social relation and fairness concept where individuals expect to receive benefits proportional to what they contribute.

Community Sharing

A form of social organization where members of a group share resources and responsibilities collectively, often emphasizing mutual aid and support.