National Co. is considering changing its credit terms from 2/15, net 30 to 3/10, net 30 in orde to speed collections. At present, 40% of National Co.'s customers take the 2% discount. Unde the new term, discount customers are expected to rise to 50%. Regardless of the credit terms half of the customers who do not take the discount are expected to pay on time, whereas the remainder will pay 10 days late. The change does not involve a relaxation of credit standards therefore bad debt losses are not expected to rise above their present 2% percent level. However, the more generous cash discount terms are expected to increase sales from P2 million to P2.6 million per year. National Co.'s variable cost ratio is 75%, the interest rate on funds invested in accounts receivable is 9%, and the firm's income tax rate is 40%.The incremental after tax profit from the change in credit terms is * Q Cormat: 11 111

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question

15

National Co. is considering changing its credit terms from 2/15, net 30 to 3/10, net 30 in order
to speed collections. At present, 40% of National Co.'s customers take the 2% discount. Under
the new term, discount customers are expected to rise to 50%. Regardless of the credit terms,
half of the customers who do not take the discount are expected to pay on time, whereas the
remainder will pay 10 days late. The change does not involve a relaxation of credit standards;
therefore bad debt losses are not expected to rise above their present 2% percent level.
However, the more generous cash discount terms are expected to increase sales from P2
million to P2.6 million per year. National Co.'s variable cost ratio is 75%, the interest rate on
funds invested in accounts receivable is 9%, and the firm's income tax rate is 40%.The
incremental after tax profit from the change in credit terms is * ,
Format: 11,111
Transcribed Image Text:National Co. is considering changing its credit terms from 2/15, net 30 to 3/10, net 30 in order to speed collections. At present, 40% of National Co.'s customers take the 2% discount. Under the new term, discount customers are expected to rise to 50%. Regardless of the credit terms, half of the customers who do not take the discount are expected to pay on time, whereas the remainder will pay 10 days late. The change does not involve a relaxation of credit standards; therefore bad debt losses are not expected to rise above their present 2% percent level. However, the more generous cash discount terms are expected to increase sales from P2 million to P2.6 million per year. National Co.'s variable cost ratio is 75%, the interest rate on funds invested in accounts receivable is 9%, and the firm's income tax rate is 40%.The incremental after tax profit from the change in credit terms is * , Format: 11,111
Expert Solution
steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Cash Flow Statement Analysis
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education