Making an Excel spreadsheet to organize your answers to the following problem, and submit your Excel file as an attachment by clicking on the appropriate button on this page.

A company with annual sales of $22,000,000 is considering changing its payment terms from net 40 to net 30 to encourage customers to pay more promptly. The company forecasts that customers would respond by paying on day 32 rather than day 44 as at present (assume a 360 day year) but would decrease their purchases by $400,000 per year. The company also forecasts that its idle cash balance would decrease by $80,000 and administrative costs would be reduced by $30,000 per year. The company's variable costs average 62% of sales, it is in the 35% marginal tax bracket, and it has an 8% cost of capital.

Part A: Calculate the incremental cash flows from accepting this proposal, and organize your cash flows into a cash flow spreadsheet.

Part B: Calculate the proposal's NPV, IRR, and NAB.

Part C: Should the company shorten its payment terms?

Here is a spreadsheet to get you started:

Eras Chapter 12 Homework V A |Old investment in A/R: Daily sales Average age of A/R Contribution margin % Old investment in A/R + New investment in A/R: x Highlight Daily sales Average age of A/R Contribution margin% on Chapter 12 Homework.pdf New investment in A/R Net decrease in A/R Profit on change in collection period: New daily sales change in average age of A/R contribution margin %% Profit on change X Time Zero Amounts Years 1 to Infinity Bor Chapter 11 Homework (1).pdf Change in A/R Admin costs Profit on change in collection period Bad debts Lesson 4.6 Practice Mode Questi X s/jessi/Downloads/Chapter%2012%20Homework.pdf A) Read aloud | Draw Other W/C change Contribution margin Total Discounts Tax on above + Total - B NPV Calculation: Present value of cash inflows Present value of cash outflows Net Present Value IRR Calculation: Annual cashflow nvestment in A/R nternal Rate of Return O NAB Calculation: Allowed annual cost Actual annual cost Net Annual Benefit