DelphyTeck is planning to change its credit policy. 

The company wants to extend its current credit terms from net 30 to net 45 days. 

It is anticipated that such a move would increasecredit sales from $400 000 to $550 000 while bad debt losses wouldbe 2%on incremental sales.

 The firm’s cost of goods sold is 55% of sales. 

Operating expenses will remain unchanged. 

The company has an opportunity cost of 10% and a tax rate of 40

No other asset buildup will be required to service the new customer.

                 

1. Calculate the incremental impact of the policy change using the tablebelow. 

 

Incremental sales
Incremental bad debt
IncrementalCost of Goods Sold
Incremental Profit before tax
Incremental Opportunity Cost - Accounts Receivable*
Total impact of policy change

 

Show opportunity cost calculation

2. Would you recommend that DelphyTeck change the company’s credit policy?  Why or why not?