Current Asset Management Solutions 6

Current Asset Management Solutions 6 - 2,520.00 2,664.00...

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Old Exam Questions - Current Asset Management - Solutions Page 6 of 21 Pages * A. $28.98 B. $34.86 C. $37.10 D. $40.32 E. $41.16 New Sales = ($37)(360) = $13,320 Investment in Receivables : Old Sales = ($35)(15) = $525 New Sales = ($2)(45)(.80) = $72 Total Investment = $525 + $72 = $597 New Interest = ($597)(.10) = $59.70 New Bad Debt Expense = ($13,320 - $12,600)(.05) = $36 Change in Net Income = $604.98 - $576 = $28.98 Income Statement Year 0 Year 1 Sales 12,600.00 13,320.00 Variable Costs -10,080.00 -10,656.00 Gross Profit
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Unformatted text preview: 2,520.00 2,664.00 Fixed Costs -1,108.00-1,108.00 Bad Debt Expense: Original -252.00-252.00 New ----36.00 EBIT 1,160.00 1,268.00 Interest: Original -200.00-200.00 New ----59.70 EBT 960.00 1,008.30 Taxes (40%) -384.00-403.32 Net Income 576.00 604.98 EBIT 1,160.00 1,268.00 EBIT(1-T) 696.00 760.80 7. What would the interest rate on the incremental investment in accounts receivable have to be for this change in credit policy to produce an incremental change in after-tax profit (net income) of exactly zero?...
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.

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