What is the incremental after-tax profit associated with the change in credit terms? Should the company make

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What is the incremental after-tax profit associated with the change in credit terms? Should the company make the change? (Assume a tax rate of 40 percent.)

Old Difference New Gross sales $1,000,000 Less discounts Net sales $1,000,000 Production costs 750,000 Profit before cre

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Financial management theory and practice

ISBN: 978-0324422696

12th Edition

Authors: Eugene F. Brigham and Michael C. Ehrhardt

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Question Posted: Mar 26, 2010 03:28 AM

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What is the incremental after-tax profit associated with the change in credit terms? Should the company make

Question:

Old Difference New Gross sales $1,000,000 Less discounts Net sales $1,000,000 Production costs 750,000 Profit before credit $ 250,000 Costs and taxes Credit-related costs: Carrying costs 7,890 Bad debt losses 20,000 $ 222,110 Profit before taxes Taxes (40%) 88,844 $ 133,266 Net income | |

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The income statements and differentials under the two credit policies are shown below Thus if expect...View the full answer

Financial management theory and practice

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