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

question 29

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 marginal investment in accounts receivable under the proposed plan? (See Table 15.7)

• A) $313,460
• B) $276,500
• C) $246,875
• D) $368,314

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Definitions:

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Random or unstructured collections of items or elements without a specific rationale for their order or selection.

Nominal Fallacy

The misconception that naming something explains it, without understanding the underlying causes or nature of what is being named.

Instinct Theories

Theories that propose individuals are driven to behave in certain ways due to evolutionary programmed instincts.

Labeling

The process of identifying and naming behaviors, conditions, or phenomena, often leading to the categorization or stigmatization of individuals within societal contexts.