Question

help with 6-9 thank you

Use the following information to answer q uestions 6 through 9. A firm currently offers credit terms of 2/10, n/30. You want to change the credit policy to 210, n/35. As a result of this change, sales are expected to rise by 15%; bad debts will rise from 1% to 3% of sales. All sales are credit sales. Currently 30% of customers pay off their accounts in 10 days with 69% paying in 30 days and 1% paying in 100 days. The change will not affect the 30% paying early but is expected to increase the 1% late payers to 3%. Assume: 365 day year 8% cost of capital Operating expenses change as a percentage of sales Taxes are at the 40% rate Interest expense will drop by $1,000 Income Statement Before credit change Sales COGS Gross Profit $200,000 120.000 80,000 Bad debts expense Operating expenses40,000 2,000 EBIT Interest expense 2.000 38,000 EBT 36,000 Taxes s 21,600 Net Profit Balance Sheet Before change $30,000 Cash Accounts Receivable 13,534 Inventory 25,600

Answer 1

1.)
Old and New Accounts Receivable
Probability	Days	Total
0.3	10	3
0.67	30	20.1
0.03	100	3
	TOTAL	26.1
Probability	Days	Total
0.3	10	3
0.69	30	20.7
0.01	100	1
	TOTAL	24.7
Change		1.4
OPTION B	ANS
2.)
Sales		230000
COGS		138000
Bad Debts		6900
Operating Expense		46000
EBIT		39100
Interest Expense		1000
EBT		38100
Taxes		15240
Net Profit		22860
OPTION C	22860	ANS
3.)
Earlier
Sales		200000
Average Days		24.7
No. of Days in A year		365
Accounts Receivable		13534
(200000*24.7/365)
After Change
Sales		230000
Average Days		26.1
No. of Days in A year		365
Accounts Receivable		16447
(230000*29.45/365)
OPTION A	ANS
4.)
Current Percent		15.00%
(30000/200000)
Change Sales		230000
New Cash Balance		34500
(230000*15%)
OPTION D	34500	ANS

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