Maxs opportunity cost of funds invested in accounts

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Unformatted text preview: nt and that offering the discount will increase sales of the finished product by 50 units (from 1,100 to 1,150 units) per year but will not alter its bad-debt percentage. MAX’s opportunity cost of funds invested in accounts receivable is 14%. Should MAX offer the proposed cash discount? An analysis similar to that demonstrated earlier for the credit standard decision, presented in Table 14.3, shows a net loss from the cash discount of $6,560. Thus MAX should not initiate the proposed cash discount. However, other discounts may be advantageous. 618 PART 5 Short-Term Financial Decisions Cash Discount Period cash discount period The number of days after the beginning of the credit period during which the cash discount is available. The cash discount period, the number of days after the beginning of the credit period during which the cash discount is available, can be changed by the financial manager. The net effect of changes in this period is difficult to analyze because of the nature of the forces involved. For example, if a firm were to increase its cash discount period by 10 days (for examp...
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