A financial manager for a jewelry distributor is analyzing the cost of offering a cash discount to its credit policy. Currently, the firm’s sales terms are net 60 and virtually all of its customers pay at the end of the 60 days. The manager estimates that if the firm offers a 2/10 net 60 discount, the average collection time on its $5,000,000 annual credit sales will drop to one month with 60% of its customers taking advantage of the discount. The distributor currently finances working capital with a revolving credit agreement at 12 . Calculate the firm’s net cost of adding the cash discount to its credit terms.