Kano Textiles Limited has annual credit sales of ₦120,000,000. Its receivables collection period is 75 days. The company considers a 1.5% early settlement discount to cut the collection period to 30 days. Its required return on investment is 20% per annum (360-day year). Assuming all customers take the discount, what is the net annual benefit of the policy?

Current receivables = (75/360) × ₦120,000,000 = ₦25,000,000. New receivables = (30/360) × ₦120,000,000 = ₦10,000,000. Reduction = ₦15,000,000. Annual saving = ₦15,000,000 × 20% = ₦3,000,000. Cost of discount = 1.5% × ₦120,000,000 = ₦1,800,000. Net annual benefit = ₦3,000,000 − ₦1,800,000 = ₦1,200,000. Since the benefit exceeds the cost, the discount policy is financially worthwhile.