acoounting for decision making

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Assignment 2 - Problem 2 ABC Inc. is proposing a change in its credit policy to increase sales of Product XYZ Existing terms is 1/10, net 30 New terms is 2/20, net 40 $ $ New sales level (all credit sales) Original sales level (all credit sales) Contribution Margin ration % bad debt losses on new sales level % bad debt losses on original sales level New average collection period (days) Original average collection period (days) Cost of Capital Cost of Goods sold as a percentage of sales 24,000,000 20,000,000 30% 5% 2% 26 15 10% 60% ABC also anticipates to have keep additional inventory. The inventory turnover rate would improve with new sales. Inventory tumover on new sales level 10 Inventory tumover on original sales level 5 Financing cost for Working Capital is 10% Tax rate 40% Current Liabilities for XYZ zero dollars Before credit policy changes, 75% of the customers takes the early payment discount Anticipate only 70% of the customers would take the discount after the change. What is net annual benefit of changing to the new credit policy