The Foglers are concerned about the firm's current credit policy. The terms of sale are net 30, but they expect only 55% of the customers (by dollar value) to pay the full amount on day 30, while the other 45% pay, on average, on Day 50. Gross sales are currently $350,000 per year. Of the gross sales, 2% end up as bad debt losses. Monthly sales for the first six months of 2023 are provided in the table below. Table 1 - 2023 Monthly Sales (first six months) January $20,000 February $25,000 March $35,000 April $40,000 May $40,000 June $35,000 FRS is considering a change in credit policy. The change would entail 1) changing the credit terms to 2/10, net 30, 2) employing stricter credit standards before granting credit, and 3) enforcing collections with greater vigor than in the past. Thus, cash customers and those paying within 10 days would receive a 2% discount, but all others would have to the pay the full amount within 30 days. The owners believe the discount would both attract additional customers and encourage some existing customers to purchase more from the firm - after all, the discount amounts to a price reduction. The net expected result is for sales to increase to $375,000, for 35% of the paying customers to take the discount and pay on the 10th day, for 45% to pay the full amount on day 30, for 15% to pay late on day 35, and for bad debt losses to fall from 2% to 1.5% of gross sales. The firm's operating (variable) cost ratio will remain unchanged at 65%, and its cost for financing (notes payable or required return on investments) will remain unchanged at 5%. The company would have to purchase some new inventory to cover the additional sales. Inventory turnover averages 4 times per year, and CGS is 55% of sales. The most recent income statement with relevant information is given below. Table 2-2023 Income Statement Gross Sales $350,000 Less: discounts 0 Net Sales $350,000 Variable Costs (65%) Profit before credit costs and taxes 227,500 $122,500 (CM) Credit related costs: A/R Carrying costs Inventory Investment cost Bad Debt Losses Profit before taxes Taxes (26%) Net Income 4. Determine the incremental after-tax profit associated with the change in credit terms being considered. In other words, what is the difference in profit from old to new credit terms? Use a 26% tax rate. (Hint: Construct income statements under each policy, consider the four variables that affect profitability with a credit policy change, and focus on the expected change.) Based on the findings, should the company make the change?