50.1K

Verified Solution

Link Copied!

i have post this question many times no one can solve it ?

A company is thinking about changing its credit policy to speed up its cash collections. The present policy calls for a 2/10, net 30 cash discount. The new policy would call for a 5/10, net 50 cash discount Currently, 34% of its customers are taking the discount, and it is anticipated that this number would go up to 58% with the new discount policy. It is further anticipated that annual sales would increase from a level of $488k to $658k as a result of the change in the cash discount policy. The average inventory carried by the firm is based on an economic order quantity (EOQ). Assume that unit sales increase from 17k to 23.8k. The ordering cost per order is $194 and the carrying cost per unit is $1.94 (these values will not change with the fulfillment of the new discount policy). Each unit in inventory has an average cost of $12. The cost of goods sold equates to 62% of net sales, general and administrative expenses represent 19% of net sales, and interest payments of 13% will only be necessary for the increase in the accounts receivable and inventory balances. The firm is in a 36% tax bracket Required: Calculate the percentage change in earnings after taxes (EAT) between the current discount policy and the new discount policy. Use a 360-day year. Note: The term "k" is used to represent thousands (* $1,000). Further Information: By the end of this problem, you are required to establish the percentage difference in EAT between the old policy lice before the proposed discount) and the new policy (ie after the proposed discount). In other words: %AEAT = (EAT new - EAT id) + EAT old Therefore, you proceed with calculating EAT for each discount policy as you normally would under the income statement framework. Remember that net sales = $ sales - S discount Moreover, interest expense = 50 when calculating EAT for the old policylie EBIT - EBT] When calculating EAT under the new policy: $ int. exp. = (increase in acc rec + increase in inc) * interest %. The difference in receivables = acc rec after the proposed discount - acc. rec before the proposed discount. This means that for each discount policy, you must multiply the avg collection period x avg daily net sales Similarly, the difference in inventory = $inv. after the proposed discount - $ inv before the proposed discount Accordingly, you must divide EOQ + 2 then multiply the outcome x the $ avg inventory cost per unit for both discount policy frameworks 1 I 96 (ROUND YOUR ANSWER TO 2 DECIMAL PLACES. FOR EXAMPLE: 17.23) A company is thinking about changing its credit policy to speed up its cash collections. The present policy calls for a 2/10, net 30 cash discount. The new policy would call for a 5/10, net 50 cash discount Currently, 34% of its customers are taking the discount, and it is anticipated that this number would go up to 58% with the new discount policy. It is further anticipated that annual sales would increase from a level of $488k to $658k as a result of the change in the cash discount policy. The average inventory carried by the firm is based on an economic order quantity (EOQ). Assume that unit sales increase from 17k to 23.8k. The ordering cost per order is $194 and the carrying cost per unit is $1.94 (these values will not change with the fulfillment of the new discount policy). Each unit in inventory has an average cost of $12 The cost of goods sold equates to 62% of net sales, general and administrative expenses represent 19% of net sales, and interest payments of 13% will only be necessary for the increase in the accounts recervable and inventory balances. The fimis ina 369 tax bracket Required: Calculate the percentage change in earnings after taxes (EAT) between the current discount policy and the new discount policy. Use a 360-day year. Note: The term "k'is used to represent thousands (* $1.000). Further information: By the end of this problem, you are required to establish the percentage difference in EAT between the old policy lie before the proposed discount) and the new policy lie after the proposed discount). In other words: SA EAT = (EAT-EATond) EAT od Therefore, you proceed with calculating EAT for each discount policy as you normally would under the income statement framework. Remember that net sales - $ sales - $ discount Moreover, interest expense - so when calculating EAT for the old policy De EBIT - EBTJ When calculating EAT under the new policy Sint exp.= increase in acc. rec+ increase in inexinterests. The difference in receivables - acc rec after the proposed discount-acc rec before the proposed discount. This means that for each discount policy, you must multiply the avg collection periodave daily net sales Similarly, the difference in inventory - $ in after the proposed discount - $ in before the proposed discount. Accordingly, you must divide EOQ + 2 then multiply the outcome x the Save inventory cost per unit for both discount policy frameworks (ROUND YOUR ANSWER TO 2 DECIMAL PLACES. FOR EXAMPLE: 1723)

Answer & Explanation Solved by verified expert

See Answer