Blueroot Inc

question 23

Multiple Choice

Blueroot Inc.is considering a change in its financing policy.Currently,it uses maximum trade credit by not taking discounts on its purchases.The standard industry credit terms offered by all its suppliers are 2/10 net 30 days,and the firm pays on time.The new CFO is considering borrowing from its bank,using short-term notes payable,and then taking discounts.The firm wants to determine the effect of this policy change on its net income.Its net purchases are $11,760 per day,using a 365-day year.The interest rate on the notes payable is 10%,and the tax rate is 40%.If the firm implements the plan,what is the expected change in net income?

• A) $32,964
• B) $34,699
• C) $36,526
• D) $38,448
• E) $40,370

---

Definitions:

Accumulated Depreciation

The total amount of depreciation expense that has been recorded against an asset since it was put into service.

Straight-line Method

An accounting method for calculating depreciation by evenly distributing the cost of an asset over its useful life.

Residual Value

The estimated remaining value of an asset at the end of its useful life.

Salvage Value

The anticipated end-of-life value of an asset once it has finished its useful period.