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

question 164

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 net result of increasing the cash discount? (See Table 15.7)

Definitions:

Chauvinism

An exaggerated or aggressive patriotism or blind enthusiasm for military glory; alternatively, it can refer to biased devotion to any cause, group, or gender.

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A personality trait that is so pervasive and dominant in a person's life that it influences nearly every aspect of their behavior.

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Perseverative Functional Autonomy

The level of functional autonomy that relates to low-level and routine behaviors.