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What is he calculation for additional profit contribution from sales?
Company A is considering offering a ariblecash discount to speed collection of accounts receivable. Currently the firm has an average collection period of 65d. Annual sales are 35,000 units, the per unit price is $40, and the per unit varible cost is $29. A 2% cash discount is being considered. The company estimates that 80% of its customers will take the 2% discount. If sales are expected to rise to 37,000 units /year and the company has a 15% required rate of return, what minimum average collection period is required to approve the cash discount plan?
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