Lisa Pinto, vice president of finance at Roche Publishing Company, a rapidly growing publisher of college texts, is concerned about the firms high level of short-term resource investment. She believes that the firm can improve the management of its cash and, as a result, reduce this investment. In this regard, she charged Arlene Bessenoff, the treasure; with assessing the firms cash management efficiency. Arlene decided to begin her investigation by studying the firms operating and cash conversion cycles.

Arlene found that Roches average payment period was 60 days. The industry average, derived from the Investigation of three similar publishing companies revealed that their average payment period is 42days- 30% lower than Roches. Lisa estimated that is Roche initiated 2% cash discount for payment within 10 days of the beginning of the credit period, the firms average collection period would drop from 60 days to the 42-day industry average. She is expected the following to occur as a result of the discount: annul sales would increase from $13,750,000 to 15, 000,000; bad debt would remain unchanged; and the 2% cash discount would be applied to 75% of the firms sales. The firms variable cost equal to 80% of sales. Lisa knows that the resources invested in working capitals have the opportunity cost for her firms 12%

To Do

Evaluate whether Roches 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 a year.

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

The change is contribution margin will be ----

The change in average investment in account receivable will be

The cost of marginal investment in account receivable will be ---

The net profit(loss) from implementation of new plan will be

Strategy for speeding its collection of account receivable (would or would not ) be acceptable.

Please show work