Table 15.7 Fizzy Animators, Inc. Currently Makes All Sales on Credit and Credit

question 186

Multiple Choice

Table 15.7
Fizzy 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, 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. (Assume a 360-day year.)
-What is the cost of the marginal cash discount? (See Table 15.7)

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

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Definitions:

Liverworts

Simple, non-vascular plants, similar to mosses, that proliferate in moist, shaded environments and are among the earliest terrestrial plants.

Sporangium

A structure in fungi and plants where spores are produced and stored.

Meiosis

A type of cell division that reduces the chromosome number by half, resulting in the production of haploid gametes or spores.

Strobilus

In certain plants, a conelike structure that bears spore-producing sporangia.