E15–5 Klein’s Tools is considering offering a cash discount to speed up the collection of accounts receivable. Currently the firm has an average collection period of 65 days, annual sales are 35,000 units, the per-unit price is $40, and the per-unit variable cost is $29. A 2% cash discount is being considered. Klein’s Tools estimates that 80% of its customers will take the 2% discount. If sales are expected to rise to 37,000 units per year and the firm has a 15% required rate of return, what minimum averagecollection period is required to approve the cash discount plan?
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