In an effort to lower its debtor balances, Zen Manufacturing Ltd. is considering switching from its no discount policy to a 2% discount for payment the fifteenth day. It is estimated that 60% of Zen‟s customers would take the discount and the average collection period is expected to declinefrom 60 days. Company officials project a 20,000 unit increase in annual sales to 220,000 units at the existing price of Sh.2,500 per unit. The variable cost per unit is Sh.2,100 and the average cost per unit is Sh.2,300. If the firm requires a 15% return on investment, should the discount be offered?

Advanced Financial Management Block Revision Mock Exams

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