Quickbow Company Currently Uses Maximum Trade Credit by Not Taking

question 41

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 $11,760 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) −$23,520
• B) −$32,160
• C) +$23,520
• D) +$37,728
• E) +$62,880

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Definitions:

Implied Warranty

Is an assurance automatically applied by law, suggesting that a product is fit for its intended purpose and meets a basic level of quality.

Breach of Warranty

Violation of the terms of a warranty agreement, where the goods or services provided fail to meet the standards or conditions promised.

Proximately Caused

An event sufficiently related to a legally recognizable injury to be considered the cause of that injury.

Breach of Warranty

A violation of the terms of a guarantee provided in a sales contract, where a product fails to meet the stated quality or standards.