Assume the business sells to individuals and retailers, ranging from small shops to large chains. Assume that it currently offers credit terms of 1/15, n/60, and ships FOB destination. To
improve its cash flow, it is considering changing credit terms to 3/10, n/30. In addition, it
proposes to change shipping terms to FOB shipping point. It expects that the increase in
discount rate will increase net sales by 9%, but the gross margin ratio (and ratio of cost of sales
divided by net sales) is expected to remain unchanged. It also expects that delivery expenses
will be zero under this proposal: thus, expenses other than cost of sales are expected to
increase only 6%.