A company with annual sales of $24,000,000 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 34 rather than day 44 as at present (assume a 360 day year) but would decrease their purchases by $450,000 per year. The company also forecasts that its idle cash balance would decrease by $40,000 and administrative costs would be reduced by $35,000 per year. The company's variable costs average 66% of sales, it is in the 35% marginal tax bracket, and it has an 9% cost of capital.
Required:
	A. Calculate the incremental cash flows associated with accepting this proposal, and organize your cash flows into a cash flow spreadsheet of the type demonstrated in chapter 12 of the textbook.
	B. Calculate the proposal's Net Present Value.
	C. Calculate the proposal's Internal Rate of Return.
	D. Calculate the proposal's Net Annual Benefit.
	E. Explain whether the firm should shorten its payment terms or not.
Your answers to this open-ended assignment should be placed in the space below this line.
A	Time Zero Amount		Years 1 through infinity
	Change in A/R balance	1,320,000		Admin costs	(35,000)
	Profit on change in balance			Bad debt changes
	Other W/C change	(35,000)		Contribution margin
	Total	1,285,000		Discounts
				Tax on above	8,400,000
				Total cash flow
	Detailed support for above numbers:
	Daily sales	$ 66,666.67
	Average age of A/R (days)	$ 6,296.30
	Variable cost %	$ 22,666.67
	Old investment in A/R	$ 37,703.70
	New daily sales	$ 66,666.67
	Average age of A/R (days)	$ 8,148.15
	Variable cost %	$ 29,333.33
	New investment in A/R	$ 29,185.19
	Net decrease in A/R balance		$ 8,518.51
	New daily sales	$ 76,527.78
	Change in average age of A/R (days)	$ 9,492.60
	Contribution margin %	$ 51,260.00
	Change in A/R based on profit portion		$ 15,775.18
	Other W/C change (given in problem)			$ 40,000.00
	Change in administrative costs (given in problem)	$ 35,000.00
	Decrease in sales	$ 76,527.78
	Contribution margin %	$ (42,350.00)
	Net decrease in contribution margin	$ 34,177.78
	Change in admin costs (from above)	$ 35,000.00
	Change in contribution margin (from above)	$ (42,350.00)
	Net taxable change	$ (7,350.00)
	Tax rate
	Net change in taxes
B	Present value of cash inflows
	Present value of cash outflows
	Net present value
C	Annual cash outflow
	Investment in A/R
	Internal rate of return
D	Allowed annual cost
	Actual annual cost
	Net annual benefit