A company is thinking about changing its credit policy to speed up its cash collections. The present policy calls for a 2/10, net 30 cash discount. The new policy would call for a 5/10, net 50 cash discount Currently, 36% of its customers are taking the discount, and it is anticipated that this number would go up to 51% with the new discount policy. It is further anticipated that annual sales would increase from a level of $456k to $700k as a result of the change in the cash discount policy. The average Inventory carried by the firm is based on an economic order quantity (EQ) Assume that unit sales increase from 16 to 228k. The ordering cost per order is $196 and the carrying cost per unit is $1.37 (these values will not change with the Tulfillment of the new discount policy). Each unit in inventory has an average cost of $11. The cost of goods sold equates to 62% of net sales, general and administrative experte represent 18% of net sales, and interest payments of 14% will only be necessary for the increase in the accounts receivable and inventory balances. The firm is in a 30x tax bracket Required Cakulate the percentage change in earnings after taxes (LAT) between the current discount polley and the new discount policy. Use a 360-day veat. Note The term is used to represent thousands (* $1.000). Further information: By the end of this problem you are required to establish the percentage difference in EAT between the old policy im before the proposed discount) and the new policy le after the proposed discount). In other words NA EAT - (EAT-EAT.) EAT Therefore, you proceed with calculating EAT for each discount policy as you normally would under the income statement framework Remember that net sales - Sales - discount Moreover, Interest expenses when calculating EAT for the old policylle EBITE87When calculating EAT under the new policy. Sint. exp. increase in secrec Increase inimese Interest The difference in receivables are after the proposed discount- acred before the proposed discount. This means that for each discount policy, you must multiply the avis collection periode dally net sales similarly, the difference in inventory Sirwatter the proposed discount - Sin before the proposed discount Accordingly, you must duide EOQ.2 then multiply the outcome the Suva inventory cost per unit for both discount polley frameworks (HOUND YOUR ANSWER TO 2 DECIMAL PLACES. FOR EXAMPLE 1723) Acompany is thinking about changing its credit policy to speed up its cash collections. The present policy calls for a 2/10, net 30 cash discount. The new policy would call for a 5/10 et 50 can discount Currently, 36% of its customers are taking the discount, and it is anticipated that this number would go up to 51% with the new discount policy. It is further anticipated that annual sales would increase from a level of $456k to $700k as a result of the change in the cash discount polley The average Inventory carried by the firm is based on an economkorder quantity (EOAssume that unit sales increase from 16 to 228k The ordering cost per order is 51% and the carrying cost per unit is $1.37 (these values will not change with the fulfillment of the new discount policy). Each unit in inventory has an average cost of 511 The cost of goods sold equates to 62of net sales, general and administrative expenses represent 18% of net sales and interest payments of 14will only be necessary for the increase in the accounts receivable and Inventory balances The firm is in a 30% tax bracket Required: Calculate the percentage change in earnings after taxes (EAT) between the current discount policy and the new discount policy Use a 360 day year Note: The terms and to represent thousands $1000) Further information By the end of this problem, you are required to establish the percentage difference in EAT between the old policy ile before the proposed discount) and the new policylletter the proposed discount) in other words SEATTEAT... - EAT) EAT The dove you proceed with calculating EAT for each discount policy as you normally would under the income statement framework Remember that net sales sales - 5 discount Moreover. Interest expenses when calculating EAT for the old policy for E87] When calculating EAT under the new policy $ int, exp. - (lincrease in acc rec increase in ind interests. The difference in receivables actrec after the proposed diacount crec before the proposed discount. This means that for each discount policy, you must mully the colection period uvedly net sales. Similarly, the difference in inventory Sinvatter the prompted discount- 3 in before the proposed discount Accordingly you must adde - then multiply the outcome the Save Inventory cont per unit for both discount policy frameworks (ROUND YOUR ANSWER TO 2 DECIMAL PLACES. FOR EXAMPLE 17.231
