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Homework answers / question archive / Epstein Company, a wholesale distributor of jewelry, sells to retail jewelry stores on terms of “net 120
Epstein Company, a wholesale distributor of jewelry, sells to retail jewelry stores on terms of “net 120.” Its average collection period is 170 days. The company is considering the introduction of a 6 percent cash discount if customers pay within 30 days. Such a change in credit terms is expected to reduce the average collection period to 136 days. Epstein expects 10 percent of its customers to take the cash discount. Annual credit sales are $6 million. Epstein’s variable cost ratio is 0.543, and its required pretax return on receivables investment is 10 percent. The company does not expect its inventory level to change as a result of the change in credit terms. Assume there are 365 days per year. Round your answers to the nearest dollar. Enter your answers in whole dollars. For example, an answer of $1.2 million should be entered as 1,200,000, not 1.20. Determine the following:
The funds released by the change in credit terms
$
The net effect on Epstein’s pretax profits
$
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