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Expected Change In Net Income

Quick bow Company currently uses maximum trade credit by not taking discounts on purchases. Quickbow is considering borrowing from its bank, using notes payable, in order to take trade discounts. The firm wants to determine the effect of the policy change on its net income.

The standard industry credit terms offered by all its suppliers are 2/10, net 30 days, and Quickbow pays in 30 days. Its net purchases are $11,760 per day, using a 365-day year. The interest rate on the note is 10% and the firms tax rate is 40%.

What is the expected change in Net Income, if the plan is implemented??

A) Negative $23,520
B) Negative $31,440
C) Positive $23,520
D) Positive $38,448
E) Positive $69,888

Please show all work for this problem in an Excel file. Thanks.

Solution Preview

Please see the attached file. How it is calculated we is that we find the change in the interest rate in ...

Solution Summary

The solution explains how to calculate the expected change in net income if cash discount is taken.

$2.19