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

question 2

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 the net effect on Warren's pretax profits of offering a 2 percent cash discount.

• A)$300,000
• B)$236,712
• C)-$63,288
• D)-$236,712

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Definitions:

Product Concepts

Theories and practices concerning how products are conceived, designed, produced, and marketed to meet consumer needs and expectations.

Design Thinking

A methodology used for solving complex problems and finding desirable solutions for clients. It draws upon logic, imagination, intuition, and systemic reasoning, to explore possibilities of what could be and to create desired outcomes that benefit the end user.

Human-Centric

An approach that places human values, needs, and well-being at the center of decision-making and development processes.

Empathic Understanding

The ability to understand and share the feelings of another person from their perspective as a means to better cater to their needs and expectations.