Silver Cloud Computing is a new company that provides cloud computing services. The company will begin operations on April 1, 2017. It acquired financing from the issuance of common stock for $75,000,000 and long-term debt for $50,000,000. The following projected income statement and balance sheet were prepared by the external accountant prior to the start of operations. All amounts are in thousands.

Silver Cloud Computing Projected Income Statement First Year of Operations (in thousands)

Sales $400,000

Expenses: Wages and salaries (includes CEO salary of $1,000) $125,000

Bad debt expense 5,000

Depreciation Marketing Expense Occupancy Expense 40,000

50,000

95,500

Research and Development (includes R&D salaries & wages and other R&D expenditures) 80,000

Total Expenses 395,500

Operating income before bonus 4,500

Bonus 225

Operating income 4,275

Interest expense 2,500

Income before taxes 1,775

Income taxes (40%) 710

Net income $ 1,065

Silver Cloud Computing Projected Balance Sheet March 31, 2018 (in thousands)

Assets: Cash $ 5,930

Accounts receivable, net of allowance of 5,000

45,000

Net computer equipment 80,000

Total assets $130,930

Liabilities & Shareholders' Equity: Accounts payable $ 4,865

Long-term debt 50,000

Common stock 75,000

Retained earnings 1,065

Total liabilities and shareholders' equity $130,930

A Chief Executive Officer (CEO) was hired just prior to the commencement of operations. After examining the projections for the first year, the CEO presented the following suggestions to the chief financial officer (CFO).

1. Decrease research and development expenditures from 20% of sales to 10% of sales.

2. Increase the estimated lives of the computer equipment from 3 years to 6 years.

3. Reduce the allowance for doubtful accounts from 10% of accounts receivable to 5% of accounts receivable.

4. Decrease marketing expense from 12.5% of sales to 8% of sales. Additional notes: The CEOs compensation package at Silver Cloud Computing is a $1,000,000 salary with a cash bonus of 5% of operating income before the bonus. Original depreciation of the computers was calculated using straight-line depreciation over a 3 year period with no salvage value.

I need to discuss the changes and impacts of changes 1 through 4