1. A firm has annual credit sales of $6 million. The firm currently averages 98 days of sales outstanding in accounts receivable. Under a new plan, the firm would shorten credit terms but this would reduce annual sales to $5,580,000. However accounts receivable would drop to 37 days outstanding under the new plan and savings on investment in account receivable could occur.

The firms variable cost ratio is 80%, and taxes are 26%. If the interest rate on funds invested in receivables is 16%, find the savings in accounts receivable by implementing the new plan. i.e. Find the difference in accounts receivable carrying costs between the current plan and the new plan. (5 points)