Jones Corporation is considering a sales campaign in which it will offer credit terms of 3/15, net/80. The finance manager expects that the collection period will increase from 90 days to 110 days. Information before and during the proposed campaign follows:
|
Percentage of Sales
before Campaign
|
Percentage of Sales
during Campaign
|
|
Cash sales
|
20
|
10
|
|
Payment from
|
|
|
|
1-15
|
35
|
25
|
|
16-120
|
45
|
65
|
The sales campaign is expected to raise sales from $5 million to $6 million. The gross profit rate is 30 percent and the rate of return is 16 percent. Sales discounts are given on cash sales. Should the sales campaign be initiated?