Reference no: EM132494801

Scott's sister, Amy, owns a very large pet supply business in Wisconsin. Last year she sold $30,000,000 worth of product to her wholesalers "net 30". Scott recently reviewed the financials of her company and determined that their average collection period is 48 days. Amy was not happy with this number, as her cash flow is becoming tight and difficult to deal with due to customers taking too long to pay. Scott mentioned that she should consider offering a cash discount for those customers who pay much more quickly--perhaps a 2% cash discount for those who pay in full within ten days. After some consideration, Amy decided to move forward with it; expecting that roughly 50% of her customers will take advantage of the discount. If all goes well, the average collection period should decline by 18 days. The opportunity cost on the receivables investment is 16%. Determine the cost to Amy.