5. A company is considering increasing the period of credit allowed to customers from 30 days to 45 days. Annual sales are currently £1,200,000, and annual profits are £100,000. It is anticipated that allowing extended credit would increase sales by 15%, while net profit margins would be unchanged. The working capital is financed by using an overdraft costing 10% per annum. Assume that there is no change in the absolute level of the inventory or account payable. What is the financial effect of the proposal (assume a year is 360 days)? A Reduction in profit of £10,000 B Increase in profit of £10,000 C Increase in profit of £15,000 D Increase in profit of £7,750
5. A company is considering increasing the period of credit allowed to customers from 30 days to 45 days. Annual sales are currently £1,200,000, and annual profits are £100,000. It is anticipated that allowing extended credit would increase sales by 15%, while net profit margins would be unchanged. The working capital is financed by using an overdraft costing 10% per annum. Assume that there is no change in the absolute level of the inventory or account payable. What is the financial effect of the proposal (assume a year is 360 days)? A Reduction in profit of £10,000 B Increase in profit of £10,000 C Increase in profit of £15,000 D Increase in profit of £7,750
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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15. A company is considering increasing the period of credit allowed to customers from 30 days to 45 days. Annual sales are currently £1,200,000, and annual profits are £100,000. It is anticipated that allowing extended credit would increase sales by 15%, while net profit margins would be unchanged. The
| A |
Reduction in profit of £10,000 |
|
| B |
Increase in profit of £10,000 |
|
| C |
Increase in profit of £15,000 |
|
| D |
Increase in profit of £7,750 |
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