Response to the following problem:
The COMP Computer Company is reevaluating its credit terms. Presently it is granting credit to customers using 1/10, net 40. COMP's competitors give their customers terms of 2/5, net 40. If COMP's customers miss the discount period, they typically pay on the net day.
a. Compare COMP's credit terms with its competitors'. Which has a higher implicit cost to the customer?
b. If COMP switched its terms to those of its competitors, what do you expect to happen to the amount of COMP's accounts receivable? Why?