Answer:
a) I guess that Nicole bills $12,000 per month, not $512,000.
Assuming that the last time Nicole billed her customers was November, she was able to collect $11,760 before the year ended. I will also assume that the remaining $240 are uncollectible.
If Nicole postpones billing her customers during December, her taxable income as a cash basis taxpayer will decrease by $12,000 x 70% = $8,400
she will be able to save $8,400 x 2% = $168 in current taxes, but she will have to pay them next year anyways.
b) The time value of money should affect Nicole's calculations because she is saving the interests that could be earned by $168 in 1 year. We are not given any specific interest rate but we could use 6% as an example. Nicole will gain $168 x 6% = $10.08
But she will also lose potential interests earned on the $8,400 that she billed later. Using the same interest rate, 6%, she will lose $8,400 x 6% x 1/12 (only 1 month) = $42.
That means that the net result from this = $10.08 - $42 = -$31.92.
As you can see, Nicole is losing money. The higher the interest rate, the more money she will lose.
c) The risk of increasing uncollectible accounts will always exist. Nicole already has around 2% of uncollectible accounts, and combining two bills at one time might lead to a higher percentage of uncollectible accounts. Of course, this depends on her clients, but the risk will increase a little bit or a lot, but it will increase.
