Q1: The marketing department of Arab company estimates that its sales in 2013 will be $1.5 million. Interest expense is expected to remain unchanged at $35,000, The firms income statement for the year ended December 31, 2012, is given below, along with a breakdown of the firms cost of goods sold and operating expenses into their fixed and variable components.

b. Use fixed and variable cost data to develop a pro forma income statement for the year ended December 31, 2013. 7 marks

Q4: Arab, Inc. currently makes all sales on credit and offers no cash discount. The firm is considering a 3 percent cash discount for payment within 10 days. The firms current average collection period is 50 days, sales are 400 units per year, selling price is $25,000 per unit, variable cost per film is $20,000 per unit. The firm expects that the change in credit terms will result in a minor increase in sales of 50 units per year that 75% of the sales will take the discount, and the average collection period will drop to 30 days. The firms bad debt expense is expected to have no change under the proposed plan. The firms required return on equal-risk investments is 15%. (Year = 365 days)

1- What is the firms additional profit contribution from sales under the proposed plan of

initiating the cash discount? 1 mark

2- What is the cost of marginal investment in accounts receivable under the proposed plan? 4 marks

3- What is the cost of cash discount? 2 mark

4- What is Net profit (loss) from initiation of proposed cash discount? 1 mark