Warren Motor Company Sells $30 Million of Its Products to Wholesalers

question 80

Multiple Choice

Warren Motor Company sells $30 million of its products to wholesalers on terms of "net 30." Currently, the firm's average collection period is 48 days.In an effort to speed up the collection of receivables, Warren is considering offering a cash discount of 2 percent if customers pay their bills within 10 days.The firm expects 50 percent of its customers to take the discount and its average collection period to decline to 30 days.The firm's required pretax return (i.e., opportunity cost) on receivables investment is 16 percent.Determine Warren's pretax earnings on the funds released from the reduction in receivables.(Assume a 365 day year.)

• A)$1,479,452
• B)$236,712
• C)$266,667
• D)$1,082,191

---

Definitions:

Operations

Activities or tasks executed to achieve specific objectives, typically within business, mathematical, or technical contexts.

SEO

Stands for Search Engine Optimization, a set of practices aimed at improving the visibility and ranking of a website or web page in search engine results.

Certification

A formal process by which an authorized body assesses and recognizes that a person has achieved competence in a specific field.

Screen Reader

Software that helps visually impaired users by reading aloud the text displayed on the computer screen.