RCMP Has Annual Credit Sales of $37 Million

question 15

Multiple Choice

RCMP has annual credit sales of $37 million.The credit terms are "net 30" and the current average collection period is 45 days.RCMP is considering changing its terms to 1/10, net 30 in an effort to reduce the average collection period.RCMP believes that 35% of its customers will take the discount, reducing the average collection period to 33 days.Should RCMP offer the discount? Assume the firm's required rate of return on its receivables investment is 14%.

• A)No, pretax profits decrease $88,700
• B)Yes, pretax profits increase $53,600
• C)Yes, pretax profits increase $40,801
• D)No, pretax profits decrease $40,801

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Definitions:

Risk Of Mistake

A legal principle concerning the risks associated with the potential for misunderstanding or miscommunication in the terms of a contract or agreement.

Accepted The Risk

The concept in law where an individual acknowledges and willingly exposes themselves to a known danger or risk.

Limited Information

Availability of only partial data or details about a subject, making comprehensive understanding or decision-making difficult.

Fraud

The deliberate deception to secure unfair or unlawful gain, or to deprive a victim of a legal right.