Question

tightening the credit terms to 30 days would reduce annual sales to $1,735,000, but accounts receivable would drop to 35 days of sales and the savings on investment in them should more than overcome any loss in profit. Assume that Vinson's variable cost ratio is 78%, taxes are 40%, and the interest rate on funds invested in receivables is 25% The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions above. Open spreadsheet Assuming a 365-day year, calculate the net income under the current policy and the new policy. Do not round intermediate calculations. Round your answers to the nearest dollar. Current policy: $ 409200 New policy: $ 226627 Should the change in credit terms be made? The firm should change its credit terms. Check My Work Reset Problem

can you please help me solve this question. this is the third time I am posting the question .the question is asking for the net income statement. please stop providing me with wrong answers. you can use excel to solve for it

this is the full question. thank you

Answer 1

Net income under current policy :

Sales = $1,860,000.00

Less variable cost = $ 1,450,800.00

(sales*78%)

= $ 4,09,200.00

Add interest income

from receivables= $ 29,842.37 ( see working note 1)

= $439,042.37

Less tax @ 40% = $175,616.95

=$ 263,425.42 = ₹263,425 (rounded off)

* ans = $263,425

Net income under new policy :

Sales = $1,735,000.00

Less Variable cost = $ 1,353,300.00

= $ 381,700.00

Add interest income

From receivables= $ 3,418.55883

= $ 385,118.559

Less tax@ 40 % = $154,047.424

= $231,071.135

=$231, 071

* ans = $ 231,071.00

Working notes:

1. Interest income from receivables ( current policy)

Receivables = 95 days sale

= $1,860,000*95/365

= $484,109.589

Interest income from receivables ( current policy)

Receivables = 95 days sale

= $1,860,000*95/365

= $484,109.589

Interest on receivables = 25%

= $484,109.589 *25%*90/365

= $29,842.3719

Interest on receivables = 25%

= $484,109.589 *25%*90/365

= $29,842.3719

2. Interest income from receivables ( New policy)

Receivables = 35 days of sale

= $ 1,735,000 * 35/365

= $ 166,369.863

Interest on receivables = 25%

=$166,369.863 *25%*30/365

= $ 3,418.55883