BayFish Company currently uses maximum trade credit by not taking discounts on its purchases. Company is planning to borrow from its bank, using notes payable, in order to take trade discounts. The firm wants to determine the effect of this policy change on its net income. The standard industry credit terms offered by all its suppliers are 2/15, net 40 days, and BayFish pays in 40 days. Its net purchases are $10,000 per day, using a 365-day year. The interest rate on the notes payable is 8% percent and the firm’s tax rate is 40 percent. If the firm implements the plan, what is the expected change in BayFish’s net income? (Hint: Use Incremental approach table)
BayFish Company currently uses maximum trade credit by not taking discounts on its purchases. Company is planning to borrow from its bank, using notes payable, in order to take trade discounts. The firm wants to determine the effect of this policy change on its net income. The standard industry credit terms offered by all its suppliers are 2/15, net 40 days, and BayFish pays in 40 days. Its net purchases are $10,000 per day, using a 365-day year. The interest rate on the notes payable is 8% percent and the firm’s tax rate is 40 percent. If the firm implements the plan, what is the expected change in BayFish’s net income? (Hint: Use Incremental approach table)
Chapter3: Evaluation Of Financial Performance
Section: Chapter Questions
Problem 16P
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BayFish Company currently uses maximum trade credit by not taking discounts
on its purchases. Company is planning to borrow from its bank, using notes payable, in order to take trade discounts. The firm wants to determine the effect of this policy change on its net income. The standard industry credit terms offered by all its suppliers are 2/15, net 40 days, and BayFish pays in 40 days. Its net purchases are $10,000 per day, using a 365-day year. The interest rate on the notes payable is 8% percent and the firm’s tax rate is 40 percent. If the firm implements the plan, what is the expected change in BayFish’s net income? (Hint: Use Incremental approach table)
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