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A company is considering increasing the period of credit 45 days. Annual sales are currently £1,200,000, and annm anticipated that allowing extended credit would increase would be unchanged. The working capital is financed by annum. Assume that there is no change in the absolute l payable. What is the financial effect of the proposal (assL Reduction in profit of £10,000 O Increase in profit of £10,000 Increase in profit of £15,000 O Increase in profit of £7,750

A company is considering increasing the period of credit 45 days. Annual sales are currently £1,200,000, and annm anticipated that allowing extended credit would increase would be unchanged. The working capital is financed by annum. Assume that there is no change in the absolute l payable. What is the financial effect of the proposal (assL Reduction in profit of £10,000 O Increase in profit of £10,000 Increase in profit of £15,000 O Increase in profit of £7,750

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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A company is considering increasing the period of credit allowed to customers from 30 days to 45 days. Annual sales are currently £1,200,000, and annual profits are £100,000. It is anticipated that allowing extended credit would increase sales by 15%, while net profit margins would be unchanged. The working capital is financed by using an overdraft costing 10% per annum. Assume that there is no change in the absolute level of the inventory or account payable. What is the financial effect of the proposal (assume a year is 360 days)? O Reduction in profit of £10,000 O Increase in profit of £10,000 O Increase in profit of £15,000 O Increase in profit of £7,750
Transcribed Image Text:A company is considering increasing the period of credit allowed to customers from 30 days to 45 days. Annual sales are currently £1,200,000, and annual profits are £100,000. It is anticipated that allowing extended credit would increase sales by 15%, while net profit margins would be unchanged. The working capital is financed by using an overdraft costing 10% per annum. Assume that there is no change in the absolute level of the inventory or account payable. What is the financial effect of the proposal (assume a year is 360 days)? O Reduction in profit of £10,000 O Increase in profit of £10,000 O Increase in profit of £15,000 O Increase in profit of £7,750
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