Tightening Credit Terms

Kim Mitcheil, the new credit manager of the Vinson Corporation, was alarmed to find that Vinson sells on credit terms of net 90 days while industry-wide credit terms have recently been lowered to net 30 days. On annual credit sales of $1.81 million, Vinson currently averages 95 days of sales in accounts receivable. Mitchell estimates that tightening the credit terms to 30 days would reduce annual sales to $1,685,000, but accounts recervable would drop to 35 days of sales and the savings on investment in them should more than overcome any loss in profic. Assume that vinson's variable cost ratio is 67%, taxes are 40si, and the interest rate on funds invested in receivabies is 25%. Assuining a 365 -day year, calcudate the net income under the current policy and the new policy, Do not round intermediate cakulations. Round your answers to the nearegt dollar: Current policy: 5 New policy:s Should the change in credit terms be made