Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A company with annual sales of $22,000,000 is considering changing its payment terms from net 40 to net 30 to encourage customers to pay more

A company with annual sales of $22,000,000 is considering changing its payment terms from net 40 to net 30 to encourage customers to pay more promptly. The company forecasts that customers would respond by paying on day 32 rather than day 44 as at present (assume a 360 day year) but would decrease their purchases by $400,000 per year. The company also forecasts that its idle cash balance would decrease by $80,000 and administrative costs would be reduced by $30,000 per year. The company's variable costs average 62% of sales, it is in the 35% marginal tax bracket, and it has an 8% cost of capital.

Part A: Calculate the incremental cash flows from accepting this proposal, and organize your cash flows into a cash flow spreadsheet.

So I've already got incremental cash done and have started on the spereadsheet but am not sure where i get some of the items like hte bad debt, s there is none listed. heres the speadsheet in question

Cash Flow spreadsheet Year 0 Year 1 -
Investment 22000000 21600000
Accounts Recievable 26888888 1920000
Other working capital
Operating cash flows
Contribution from sales
Bad Debts
Discounts
Administrative costs
Tax -- changed income
net cash flows

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Markets And Institutions A Modern Perspective

Authors: Anthony Saunders, Marcia Millon Cornett, Marcia Cornett

2nd Edition

007294109X, 978-0072941098

More Books

Students also viewed these Finance questions

Question

Cite the reasons employees join unions.

Answered: 1 week ago