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Dome Metals has credit sales of $162,000 yearly with credit terms of net 30 days, which...

Dome Metals has credit sales of $162,000 yearly with credit terms of net 30 days, which is also the average collection period. Assume the firm adopts new credit terms of 2/15, net 30 and all customers pay on the last day of the discount period. Any reduction in accounts receivable will be used to reduce the firm's bank loan which costs 8 percent. The new credit terms will increase sales by 20% because the 2% discount will make the firm's price competitive.
   
a. If Dome earns 25 percent on sales before discounts, what will be the net change in income if the new credit terms are adopted? (Use a 360-day year.)

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File Home nert Page Layout Formulas Data Review View dd-Ins Cut Σ AutoSum Calibri ー E ゴWrap Text General aCopy в 1 프 . Ej-., Δ. : rーー 逻锂函Merge & Center. $, % , 弼,8 C Paste Conditional Format CeInsert Delete Format Formatting as Table Styles2 Clear Sort &Find & Format Painter Clipboard Font Alignment Number Styles Cells Edting GH26 GH Gl GJ GK GL GM GN GO GP GQ GR GS GT GU 26 27 28 29 30 31 32 STEP 1 NEW SALES 162000 + 20% INCREASE 194400 STEP 2 INCREASE IN PROFIT- 25% (194400-162000) 8100 STEP 3 AVERAGE ACCOUNTS RECEIVABLE WITHOUT DISCOUNT 13500 (162000 X 30/360) STEP 4 AVERAGE ACCOUNTS RECEIVABLE WITH DISCOUNT 8100 (194400 X15/360) 34 35 36 37 38 39 40 41 42 43 STEP 5 DECREASE IN ACCOUNTS RECEIVABLE 5400 (13500-8100) STEP 6 INTEREST SAVING- 5400 X 8% 432 STEP 7 COST OF DISCOUNT 2% OF 194400 = 3888 STEP 8 NET CHANGE IN INCOME 4644 (8100 + 432 - 3888) CREDIT POLICY SHOULD BE ACCEPTED 1 | MDURATION MULTIPLE GROWTH RR-NR-BOND . .. loan 0 show -BEP CRDIT POLICY RATIOCCA CVP erences: F180 07:30 18-01-2019

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