A company with annual sales of$22,000,000 is considering changing itspayment terms from net 40 to net 30 toencourage customers to pay more promptly.The company forecasts that customerswould respond by paying on day 32 ratherthan day 44 as at present (assume a 360day year) but would decrease theirpurchases by $400,000 per year. Thecompany also forecasts that its idle cashbalance would decrease by $80,000 andadministrative costs would be reduced by$30,000 per year. The company's variablecosts average 62% of sales, it is in the 35%marginal tax bracket, and it has an 8% costof capital.Part A: Calculate the incremental cash flowsfrom accepting this proposal, and organizeyour cash flows from part A into a cash flowspreadsheet.Part B: Calculate the proposal's NPV, IRR,and NAB.Part C: Should the company shorten itspayment terms?

Working capital changes:Decrease in Receivables.......1…

Answered: 00,000 is considering changing its ent…

00,000 is considering changing its ent terms from net 40 to net 30 to rage customers to pay more promp ompany forecasts that customers respond by paying on day 32 rathe

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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