Question 1 (15 Marks) A company is thinking about changing its credit policy to speed up its cash collections. The new policy would call for a 3/10, net 50 cash discount, where 60% of its customers are expected to take up the discount. It is further anticipated that annual dollar sales would increase to $600,000, at a selling price of $20 per unit, as a result of the change in policy. The average inventory carried by the firm is based on an economic order quantity (EOQ). The ordering cost is $200 per order and the carrying cost is $1.50 per unit, where each unit in inventory incurs an average cost of $12. The cost of goods sold equates to 65% of net sales. Operating expenses represent 15% of cost of goods sold. Accounts receivable and average inventory underlying the old policy are $27,000 and $12,000, respectively. Interest expense underlines 14% of the combined increase in the accounts receivable and inventory balances. The firm is in a 40% tax bracket. Required: Based on the percentage change in earnings after taxes (EAT) between the o and the new discount policy, should the firm accept the proposed terms? Assume that E- under the old policy to be $117,000. Use a 360-day year. Disregard rounding differences. a