# FM27 3 - -\$ 5,635 \$ 319,584 Taxes(40 130,088 2,254 127,834...

This preview shows page 1. Sign up to view the full content.

SOLUTIONS TO END-OF-CHAPTER PROBLEMS 27-1 Analysis of change: Projected Income Projected Income Statement Effect of Statement Under Current Credit Policy Under New Credit Policy Change Credit Policy Gross sales \$1,600,000 +\$ 25,000 \$1,625,000 Less: Discounts 0 0 0 Net sales \$1,600,000 +\$ 25,000 \$1,625,000 Variable costs 1,200,000 + 18,750 1,218,750 Profit before credit costs and taxes \$ 400,000 +\$ 6,250 \$ 406,250 Credit-related costs: Cost of carrying receivables* 15,781 + 8,260 24,041 Collection expense 35,000 - 13,000 22,000 Bad debt losses 24,000 + 16,625 40,625 Profit before taxes \$ 325,219
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: -\$ 5,635 \$ 319,584 Taxes (40%) 130,088- 2,254 127,834 Net income \$ 195,131-\$ 3,381 \$ 191,750 *Cost of carrying receivables: . ( ) ⎟ ⎟ ⎠ ⎞ ⎜ ⎜ ⎝ ⎛ ⎟ ⎟ ⎠ ⎞ ⎜ ⎜ ⎝ ⎛ ⎟ ⎟ ⎠ ⎞ ⎜ ⎜ ⎝ ⎛ funds of Cost ratio cost Variable day per Sales DSO Current policy = (30) ⎟ ⎠ ⎞ ⎜ ⎝ ⎛ 365 000 , 600 , 1 \$ (0.75)(0.16) = \$15,781. New policy = (45) ⎟ ⎠ ⎞ ⎜ ⎝ ⎛ 365 000 , 625 , 1 \$ (0.75)(0.16) = \$24,041. Since the change in profitability is negative, the firm should not relax its collection efforts. Answers and Solutions: 27 - 3...
View Full Document

## 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.

Ask a homework question - tutors are online