A company with annual sales of $24,000,000 is considering changing…

Question A company with annual sales of $24,000,000 is considering changing… A company with annual sales of $24,000,000 is considering changing its payment terms from net 40 to net 30 to encourage customers to pay more promptly. The company forecasts that customers would respond by paying on day 34 rather than day 44 as at present (assume a 360 day year) but would decrease their purchases by $450,000 per year. The company also forecasts that its idle cash balance would decrease by $40,000 and administrative costs would be reduced by $35,000 per year. The company’s variable costs average 66% of sales, it is in the 35% marginal tax bracket, and it has an 9% cost of capital.           A.  Calculate the incremental cash flows associated with accepting this proposal, and organize your cash flows into a cash flow spreadsheet of the type demonstrated in chapter 12 of the textbook.  B.  Calculate the proposal’s Net Present Value.  C.  Calculate the proposal’s Internal Rate of Return.  D.    Calculate the proposal’s Net Annual Benefit. E.  Explain whether the firm should shorten its payment terms or not.         ATime Zero Amount Years 1 through infinity   Change in A/R balance    Admin costs     Profit on change in balance    Bad debt changes     Other W/C change    Contribution margin     Total    Discounts        Tax on above        Total cash flow                   Detailed support for above numbers:           Daily sales      Average age of A/R (days)      Variable cost %      Old investment in A/R           New daily sales      Average age of A/R (days)      Variable cost %      New investment in A/R           Net decrease in A/R balance                New daily sales      Change in average age of A/R (days)      Contribution margin %      Change in A/R based on profit portion                    Other W/C change (given in problem)                    Change in administrative costs (given in problem)            Decrease in sales      Contribution margin %      Net decrease in contribution margin                    Change in admin costs (from above)      Change in contribution margin (from above)      Net taxable change      Tax rate      Net change in taxes           B Present value of cash inflows      Present value of cash outflows      Net present value           C Annual cash outflow      Investment in A/R      Internal rate of return           D Allowed annual cost      Actual annual cost      Net annual benefit    EDouble click and put your answer here.   Business Finance FIN 310 Share QuestionEmailCopy link Comments (0)