What will be the net change in income if the new credit

Assignment Help Financial Management

Reference no: EM131837875

Dome Metals has credit sales of $432,000 yearly with credit terms of net 90 days, which is also the average collection period. Assume the firm adopts new credit terms of 2/15, net 90 and all customers pay on the last day of the discount period. Any reduction in accounts receivable will be used to reduce the firm's bank loan which costs 11 percent. The new credit terms will increase sales by 10% because the 2% discount will make the firm's price competitive.

a. If Dome earns 15 percent on sales before discounts, what will be the net change in income if the new credit terms are adopted? (Use a 360-day year.)

b. Should the firm offer the discount?

Reference no: EM131837875

Questions Cloud

Purchasing of computing systems in an organization : Discuss at least five factors that might influence purchasing of computing systems in an organization, and state why those factors may not apply to all types

What is effective annual rate of interest : What is the effective annual rate of interest if Y pays on the due date rather than day 15?

Discuss the aspects of recruitment and membership : After reviewing the course materials for the week, discuss the aspects of recruitment and membership in terrorist organizations as they compare.

How does this impact supply chain management : Example the importance of lead time in strategic planning for a Nursing Home. How does this impact supply chain management?

What will be the net change in income if the new credit : If Dome earns 15 percent on sales before discounts, what will be the net change in income if the new credit terms are adopted?

Analyzing the financial records of the business : Say that you are analyzing the financial records of the business you have been thinking about buying. You discover that, although the firm has excellent current

Compute and record income tax expense : The company’s federal income tax rate is 25%.Compute and record income tax expense. Give the adjusting journal entry required for each item at December 31, 2015

What constraints does the consumer who follows biblical : What constraints does the consumer who follows Biblical principles have on his consumption that a non-Bible believing consumer would not have?

Which identifies challenges that the organization will face : create a SWOT analysis, which you will describe in paragraph form in your paper, which identifies challenges and opportunities that the organization will face?

User Account

All Pages