Question 1
Tamil Traders Ltd was extended credit terms of 2/10 net 70. The cost of giving up the cash
discount, assuming a 365-day year is …
1. 6.27%.
2. 7.20%.
3. 12.41%.
4. 14.89%.
cost of giving up a cash discount is given by the formula:
= (2/98) x 365/60 = 12.41%
, Question 2
Ruby Jewelers Ltd had actual sales of R200 000 in November and projected sales in
December and January of R300 000 and R360 000, respectively. During the month of sale,
40% of sales are collected, 50% are collected in the month following the month of sale and
10% is collected two months after the month of sale. Given this information, the firm’s total
expected receipts in January are …
1. R 80 000.
2. R157 000.
3. R220 000.
4. R314 000
Month Nov Dec Jan
Forecasted sales 200 000 300 000 360 000
Cash (40%) 80 000 120 000 144 000
Credit sales (50%) - 100 000 150 000
Credit sales (10%) - - 20 000
Total 314 000
Question 3
Deals, Inc currently makes all art sales on credit and offers no cash discount. The firm is
considering a 3% cash discount for payment within 10 days. The firm's current average
collection period is 90 days, sales are 400 art pieces per year and selling price is R25 000 per
art piece. Variable cost per item is R18 750 and the average cost per item is R21 000. The
firm expects that the change in credit terms will result in a minor increase in sales of 10 items
per year, that 75% of the sales will be subjected to the discount, and the average collection
period will drop to 30 days. The firm's bad debt expense is expected to become negligible
under the proposed plan. The bad debt expense is currently 0.5% of sales. The firm's required
return on equal-risk investments is 20%.
Question 3: What is the firm’s marginal profit contribution under the proposed plan?
1. R22 500
2. R40 000
3. R62 500
4. R100 000
Tamil Traders Ltd was extended credit terms of 2/10 net 70. The cost of giving up the cash
discount, assuming a 365-day year is …
1. 6.27%.
2. 7.20%.
3. 12.41%.
4. 14.89%.
cost of giving up a cash discount is given by the formula:
= (2/98) x 365/60 = 12.41%
, Question 2
Ruby Jewelers Ltd had actual sales of R200 000 in November and projected sales in
December and January of R300 000 and R360 000, respectively. During the month of sale,
40% of sales are collected, 50% are collected in the month following the month of sale and
10% is collected two months after the month of sale. Given this information, the firm’s total
expected receipts in January are …
1. R 80 000.
2. R157 000.
3. R220 000.
4. R314 000
Month Nov Dec Jan
Forecasted sales 200 000 300 000 360 000
Cash (40%) 80 000 120 000 144 000
Credit sales (50%) - 100 000 150 000
Credit sales (10%) - - 20 000
Total 314 000
Question 3
Deals, Inc currently makes all art sales on credit and offers no cash discount. The firm is
considering a 3% cash discount for payment within 10 days. The firm's current average
collection period is 90 days, sales are 400 art pieces per year and selling price is R25 000 per
art piece. Variable cost per item is R18 750 and the average cost per item is R21 000. The
firm expects that the change in credit terms will result in a minor increase in sales of 10 items
per year, that 75% of the sales will be subjected to the discount, and the average collection
period will drop to 30 days. The firm's bad debt expense is expected to become negligible
under the proposed plan. The bad debt expense is currently 0.5% of sales. The firm's required
return on equal-risk investments is 20%.
Question 3: What is the firm’s marginal profit contribution under the proposed plan?
1. R22 500
2. R40 000
3. R62 500
4. R100 000
