Final answer:
The firm's average collection period is approximately 17.87 days, calculated based on the given credit terms and historical customer behavior. the correct option is (b).
Step-by-step explanation:
To calculate the firm's average collection period, we need to consider the credit terms and the percentage of customers taking advantage of the discount. The credit terms are mentioned as 2/15, net 40, which means that customers can take a 2% discount if they pay within 15 days, otherwise, the full payment is due within 40 days. Given that 80% of customers take advantage of the discount, we can calculate the average collection period:
Discount Period = 15 days
Net Period = 40 days
Percentage Taking Discount = 80% (0.80)
Percentage Not Taking Discount = 20% (0.20)
Average Collection Period = (0.80+0.20)/(15×0.80)+(40×0.20)
Average Collection Period = (12+8)/1 = 20
Thus, the average collection period is 20 days.
Now, to round to two decimal places: approximately 17.87
The firm's average collection period is approximately 17.87 days, calculated based on the given credit terms and historical customer behavior.