A firm currently offers credit terms of 2/10, n/30. You want to change the credit policy to 2/10, n/35. As a result of this change, sales are expected to rise by 15%; bad debts will rise from 1% to 3% of sales. All sales are credit sales.

Currently, 30% of customers pay off their accounts in 10 days with 69% paying in 30 days and 1% paying in 100 days. The change will not affect the 30% paying early but is expected to increase the 1% late payers to 3%.

Assume: 365 day year

8% cost of capital

Operating expenses change as a percentage of sales

Taxes are at the 40% rate

Interest expense will drop by $1,000

Income Statement Before credit change
Sales	$200,000
COGS	120,000
Gross Profit	80,000
Bad debts expense	2,000
Operating expenses	40,000
EBIT	38,000

Interest expense 2,000

EBT 36,000

Taxes 14,400

Net Profit $ 21,600

Balance Sheet

Before change

Cash $30,000

Accounts Receivable 13,534

Inventory 25,600

What will cash be after the increase in sales if cash remains the same percent of sales?

1. $30,000
2. $33,700
3. $34,000
4. $34,500