Excel Online Structured Activity: Tightening Credit Terms Kim Mitchell, the new credit manager of the Vinson Corporation, was alarmed to find that Vinson sells on credit terms of net 90 days while industry- wide credit terms have recently been lowered to net 30 days. On annual credit sales of $2.22 million, Vinson currently averages 95 days of sales in accounts receivable. Mitchell estimates that tightening the credit terms to 30 days would reduce annual sales to $2,095,000, but accounts receivable would drop to 35 days of sales and the savings on investment in them should more than overcome any loss in profit. Assume that Vinson's variable cost ratio is 79%, taxes are 40%, and the interest rate on funds invested in receivables is 15%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions above. X Open spreadsheet Assuming a 365-day year, calculate the net income under the current policy and the new policy. Do not round intermediate calculations. Round your answers to the nearest dollar. Current policy: $ New policy: $ Should the change in credit terms be made? The firm should change its credit terms The firm should not change its credit terms. LIICLA IVY VYVIN 1 RCSCL IVVICII B D E F G A 1 Tightening Credit Terms 2 3 Firm's current credit terms, net 4 Industry-wide credit terms, net 5 Discounts 6 Bad Debt Losses 7 Firm's variable cost ratio 8 Tax rate 9 Interest rate on funds invested in receivables 10 Days in year 11 12 Current Credit Policy 13 Annual credit sales 14 Days sales outstanding, DSO 15 New Credit Policy, Tighten to 16 Industry-Average Credit Terms: 17 Annual credit sales 18 Days sales outstanding, DSO 19 90 days 30 days $0 SO 79.00% 40.00% 15.00% 365 $2,220,000 95 days $2,095,000 35 days D20 fx Effect of Credit Policy Change D E F G Credit Policy Change -$125,000 0 Projeced Income Statement Under New Credit Policy $2,095,000 0 0 A B ST Creu Sales 2,099,000 18 sales outstanding, DSO 35 days 19 Projected Income Statement Under 20 ging Credit Policy Analysis: Current Credit Policy 21 sales $2,220,000 22 unts 0 23 sales 24 ble costs 25 before credit costs and taxes 26 t-related costs: 27 of carrying receivables 28 lebt losses 0 29 before taxes 30 31 come 32 33 d the change in credit terms be made? 34 35 Formulas Projected Income Statement Under 36 ging Credit Policy Analysis: Current Credit Policy 37 sales =B13 38 unts =SB$5 39 sales #N/A 40 ble costs #N/A 41 before credit costs and taxes #N/A 42 t-related costs: 43 of carrying receivables #N/A 44 lebt losses =$B$6 45 before taxes #N/A 46: #N/A 47 come #N/A ec Credit Policy Change =F21-B21 =F22-B22 #N/A #N/A #N/A Projeced Income Statement Under New Credit Policy =B17 =$B$5 #N/A #N/A #N/A #N/A =$B$6 #N/A =F28-B28 #N/A #N/A #N/A #N/A #N/A #N/A 48 #N/A 49 d the change in credit terms be made? 50 Excel Online Structured Activity: Tightening Credit Terms Kim Mitchell, the new credit manager of the Vinson Corporation, was alarmed to find that Vinson sells on credit terms of net 90 days while industry- wide credit terms have recently been lowered to net 30 days. On annual credit sales of $2.22 million, Vinson currently averages 95 days of sales in accounts receivable. Mitchell estimates that tightening the credit terms to 30 days would reduce annual sales to $2,095,000, but accounts receivable would drop to 35 days of sales and the savings on investment in them should more than overcome any loss in profit. Assume that Vinson's variable cost ratio is 79%, taxes are 40%, and the interest rate on funds invested in receivables is 15%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions above. X Open spreadsheet Assuming a 365-day year, calculate the net income under the current policy and the new policy. Do not round intermediate calculations. Round your answers to the nearest dollar. Current policy: $ New policy: $ Should the change in credit terms be made? The firm should change its credit terms The firm should not change its credit terms. LIICLA IVY VYVIN 1 RCSCL IVVICII B D E F G A 1 Tightening Credit Terms 2 3 Firm's current credit terms, net 4 Industry-wide credit terms, net 5 Discounts 6 Bad Debt Losses 7 Firm's variable cost ratio 8 Tax rate 9 Interest rate on funds invested in receivables 10 Days in year 11 12 Current Credit Policy 13 Annual credit sales 14 Days sales outstanding, DSO 15 New Credit Policy, Tighten to 16 Industry-Average Credit Terms: 17 Annual credit sales 18 Days sales outstanding, DSO 19 90 days 30 days $0 SO 79.00% 40.00% 15.00% 365 $2,220,000 95 days $2,095,000 35 days D20 fx Effect of Credit Policy Change D E F G Credit Policy Change -$125,000 0 Projeced Income Statement Under New Credit Policy $2,095,000 0 0 A B ST Creu Sales 2,099,000 18 sales outstanding, DSO 35 days 19 Projected Income Statement Under 20 ging Credit Policy Analysis: Current Credit Policy 21 sales $2,220,000 22 unts 0 23 sales 24 ble costs 25 before credit costs and taxes 26 t-related costs: 27 of carrying receivables 28 lebt losses 0 29 before taxes 30 31 come 32 33 d the change in credit terms be made? 34 35 Formulas Projected Income Statement Under 36 ging Credit Policy Analysis: Current Credit Policy 37 sales =B13 38 unts =SB$5 39 sales #N/A 40 ble costs #N/A 41 before credit costs and taxes #N/A 42 t-related costs: 43 of carrying receivables #N/A 44 lebt losses =$B$6 45 before taxes #N/A 46: #N/A 47 come #N/A ec Credit Policy Change =F21-B21 =F22-B22 #N/A #N/A #N/A Projeced Income Statement Under New Credit Policy =B17 =$B$5 #N/A #N/A #N/A #N/A =$B$6 #N/A =F28-B28 #N/A #N/A #N/A #N/A #N/A #N/A 48 #N/A 49 d the change in credit terms be made? 50