Changing the credit period

Making changes to a firm's credit policy involves trade$-$offs. Assuming that all other factors remain constant, which of the following are outcomes

expected to result from an increase in a firm's cash discount? Check all that apply.

An increase in the firm's credit sales, a speeding up of customer payments, and a reduction in the firm's receivables investment

An increase in the creditworthiness of the firm's customers

An increase in the cost of the discounts given

An increase in the firm's bad$-$debt expenses

Virginia Hydroponics Company $($VHC$),$ a wholesaler of seeds and plant nursery products, currently sells on terms of net $45$ to its customers but is

experiencing a days sales outstanding $($DSO$)$ of $105$ days. In an effort to reduce this delay, VHC$\text{'}$s management is considering implementing its first

cash discount. The revised credit terms, $\frac{2}{25}$ net $45,$ are expected to reduce its DSO to $75$ days. VHC expects $14\%$ of its customers to take the

discount, but it does not expect its inventory level to change as a result of the policy change.

VHC has annual sales of $$4,000,000$ and incurs variable costs of $65\%.$ Sales and the level of variable costs are not expected the

alteration in credit policy. VHC wants to earn a pretax return of $12\%$ on its receivables investment.

Given this data, answer the following questions. $($Note: Use $365$ days as the length of a year. Do not round intermediate calculations. Round all final

answers to the nearest dollar.$)$

What is the expected incremental change in VHC$\text{'}$s average receivables balance?

How much cost savings is generated by the reduction in the receivables investment?

How much in cash discounts will be sacrificed by VHC$?$

What is the net change in VHC$\text{'}$s pretax earnings?

Should the company make the change to its credit policy?