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Question 1: Change to Credit Terms (2 marks) ACME Inc sells on terms net of 30 days and is considering changing the terms to
Question 1: Change to Credit Terms (2 marks) ACME Inc sells on terms net of 30 days and is considering changing the terms to net 45 days. The company wants the funds to purchase equipment and does not want to take out a loan. Management hopes that the machinery will generate a return on investment greater than 20%. The expected effect of the change in credit is detailed below. Should the company adopt the change? Why or why not? Show your calculations. Net 30 in ($000s) Revenue Today Net 45 Proposed Change 165 195 30 Profit/Net Income for the 12 15 3 year Trade Receivables 18 35 17
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