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I am Lyosha [343]
3 years ago
5

Gonzales Company currently uses maximum trade credit by not taking discounts on its The standard industry credit terms offered b

y all its suppliers are 2/10, net 30 days, and the firm pays on time. The new CFO is considering borrowing from its bank, using short-term notes payable, and then taking discounts. The firm wants to determine the effect of this policy change on its net income. Its net purchases are $11,760 per day, using a 365-dayyear. The interest rate on the notes payable is 10%, and the tax rate is 40%.
If the firm implements the plan, what is the expected change in net income?

a. $32,964

b.$34,699

c. $36,526

d.$38,448

e. $40,370
Business
1 answer:
ira [324]3 years ago
8 0

Answer:

d.$38,448

Explanation:

The computation of the expected change in net income is shown below:

The net purchase for one day = $11,760

For 20 days excluding discount period i.e 10 days , it would be

= $11,760 × 20 days

= $235,200

The interest would be

= $235,200 × 10%

= $23,520

Now the gross purchase  is

= (Net purchase × total number of days in a year) ÷ (1 - discount rate)

= ($11,760 × 365 days) ÷ (1 - 0.02)

= $4,292,400 ÷ 0.98

= $4,380,000

The discount is

= $4,380,000 × 0.02

= $87,600

After tax rate, the change in net income would be

= ($87,600 - $23,520) × (1 - tax rate)

= $64,080 × 0.60

= $38,448

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Read 2 more answers
Anthony Finley wishes to become a millionaire. His money market fund has a balance of $287,270 and has a guaranteed interest rat
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Answer:

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Explanation:

The target accumulated future amount is the future value of the initial investment(present value), hence, using the future value formula provided below we can determine the investment time horizon in years required to accumulate the target amount:

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