问题详情

ZXCCocurrentlyhasincomeof$30millionperyear,ofwhich80%isfromcreditsales,andanetprofitmarginof10%.Duetofiercecompetition,ZXCCohaslostmarketshareandislookingforwaystowinbackformercustomersandtokeeptheloyaltyofexistingcustomers.ThesalesdirectorhaspointedoutthatamajorcompetitorofZXCCocurrentlyoffersanearlysettlementdiscountof0·5%forsettlementwithin30days,whileZXCCoitselfdoesnotofferanearlysettlementdiscount.HesuggeststhatifZXCCocouldmatchthisearlysettlementdiscount,annualincomefromcreditsaleswouldincreaseby20%.
CreditcustomersofZXCCotakeanaverageof51daystosettleinvoices.Approximately0·5%ofthecompany’screditsaleshavehistoricallybecomebaddebtseachyearandwrittenoffasirrecoverable.Thefinancedirectorhasbeenadvisedthatofferinganearlysettlementdiscountof0·5%forpaymentwithin30dayswouldincreaseadministrationcostsby$35,000peryear,while75%ofcreditcustomerswouldbelikelytotakethediscount.Thecreditcontrollerbelievesthatbaddebtswouldfallto0·375%ofcreditsalesiftheearlysettlementdiscountwereintroduced.
ZXCCohasanaverageshort-termcostoffinanceof4%peryear.Assumethatthereare360daysineachyear.
Required:
(a)EvaluatewhetherZXCCoshouldintroducetheearlysettlementdiscount.(6marks)
(b)DiscussTWOwaysinwhichacompanycouldreducetheriskassociatedwithforeignaccountsreceivable.(4marks)


请帮忙给出正确答案和分析，谢谢！