Finance

Until recently, Augean Cleaning Products sold its products on terms of net 60, with an average collection period of 75 days. In an attempt to induce customers to pay more promptly, it has changed its terms to 2/10, EOM, net 60. The initial effect of the changed terms is as follows:

* Some customers deduct the cash discount even though they pay after the
specified date.
Calculate the effect of the changed terms. Assume
• Sales volume is unchanged.
• The interest rate is 12 percent.
• There are no defaults.
• Cost of goods sold is 80 percent of sales.

8 Look back at Practice Question 7. Assume that the change in credit terms results in a 2 percent increase in sales. Recalculate the effect of the changed credit terms.

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