Wallace Company sells $73 million of its products to retailers on credit terms of "net 30." Its average collection period is 55 days. To speed up the collection of receivables, the company is considering changing its credit terms to "2/10, net 30." The company expects 40% of its customers to take the cash discount and its average collection period to decline to 35 days. Wallace's required pretax rate of return on receivables investments is 15%. Determine the net effect on Wallace's pretax profits of the change in credit terms. (Assume 365 days per year in any calculations.)
A) -$860,000
B) $600,000
C) $16,000
D) $584,000

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The Answer of Wallace Company sells $73 million of its products to retailers on credit terms of "net 30." Its average collection period is 55 days. To speed up the collection of receivables, the company is considering changing its credit terms to "2/10, net 30." The company expects 40% of its customers to take the cash discount and its average collection period to decline to 35 days. Wallace's required pretax rate of return on receivables investments is 15%. Determine the net effect on Wallace's pretax profits of the change in credit terms. (Assume 365 days per year in any calculations.)
A) -$860,000
B) $600,000
C) $16,000
D) $584,000

Wallace Company Sells $73 Million of Its Products to Retailers