FM27 4 - 128,562 Net income $ 165,267 +$ 27,577 $ 192,844...

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27-2 Analysis of change: Projected Income Projected Income Statement Effect of Statement Under Current Credit Policy Under New Credit Policy Change Credit Policy Gross sales $2,500,000 -$125,000 $2,375,000 Less: Discounts 0 0 0 Net sales $2,500,000 -$125,000 $2,375,000 Variable costs 2,125,000 - 106,250 2,018,750 Profit before credit costs and taxes $ 375,000 -$ 18,750 $ 356,250 Credit-related costs: Cost of carrying receivables* 99,555 - 64,711 34,844 Bad debt losses 0 0 0 Profit before taxes $ 275,445 +$ 45,961 $ 321,406 Taxes (40%) 110,178 + 18,384
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Unformatted text preview: 128,562 Net income $ 165,267 +$ 27,577 $ 192,844 *Cost of carrying receivables: . ( ) funds of Cost ratio cost Variable day per Sales DSO Current policy = (95) 365 000 , 500 , 2 $ (0.85)(0.18) = $99,555. New policy = (35) 365 000 , 375 , 2 $ (0.85)(0.18) = $34,844. The firm should change its credit terms since the change in profitability is positive. Answers and Solutions: 27 - 4...
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