Will the change in terms be a good decision for the company

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Change in A/R terms:

Superstition Inc., owns a water company. This company specializes in high-quality, purified water. When the business was started terms were 2/15, net 45 days, which seemed to be the industry average. However payments have been averaging 60 days. In an effort to speed collections, you as the financial manager are considering changing terms to 2/15, net 30. Average annual sales have been and will continue to be $17 million. You expect that DSO will now average 30 days, you expect that 45% of customers will now take the discount. Previously only 30% of your customers were taking the discount.

Question 1: You have estimated your cost of capital to be 15%. Will the change in terms be a good decision for the company?

Reference no: EM132496910

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