Quickbow Company Currently Uses Maximum Trade Credit by Not Taking

question 48

Multiple Choice

Quickbow Company currently uses maximum trade credit by not taking discounts on its 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 this 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 R11,760 per day, using a 360-day year.The rate on the notes payable is 10 percent and the firm's tax rate is 40 percent.If the firm implements the plan, what is the expected change in Quickbow's net income?

• A) -R23,520
• B) -R32,160
• C) +R23,520
• D) +R37,728
• E) +R62,880

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Definitions:

New Deal Policies

A series of programs, public work projects, financial reforms, and regulations enacted by President Franklin D. Roosevelt in the United States during the 1930s.

Bankers

are individuals or entities engaged in the business of dealing with money, lending, exchanging, and safeguarding funds.

Inflation

The rate at which the general level of prices for goods and services rises, eroding purchasing power over time.

Securities Act of 1933

is a U.S. law enacted to protect investors by requiring transparency in the financial statements of publicly traded companies.