Assessing Roche Publishing Company's Cash Management EfficiencyLisa Pinto, vice president of finance at Roche Publishing Company, a rapidly growing publisher of college texts, is concerned about the firm's credit policies. Roche's average collection period is

60

days. The industry average, derived from the trade association data and information on three similar publishing companies, is

42

days30%

lower than Roche's. Lisa estimated that if Roche initiated a

2.0%

cash discount for payment within

10

days of the beginning of the credit period, the firm's average collection period would drop from

60

days to the

42-day

industry average. She also expected the following to occur as a result of the discount: Annual sales would increase from

$13,750,000

to

$15,000,000;

bad debts would remain unchanged; and the

2.0%

cash discount would be applied to

75%

of the firm's sales. The firm's variable costs equal

80%

of sales. Lisa knows that the resources invested in working capital have an opportunity cost for her firm of

12.0%.

To Do

Evaluate whether Roche's strategy for speeding its collection of accounts receivable would be acceptable. What annual net profit or loss would result from implementation of the cash discount? Assume 365 days in a year.

Question content area bottom

Part 1

What annual net profit or loss would result from implementation of the cash discount? Assume 365 days in a year.

The change in contribution margin will be

$enter your response here.

(Round to the nearest dollar.)