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

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Definitions:

Transactional Function

The transactional function refers to the activities involved in the buying and selling process or exchange of goods and services between parties.

Selling Goods

The act of transferring ownership of products from a seller to a buyer for a price, typically conducted in the marketplace.

Taking Possession

The act of acquiring ownership or control over an asset, property, or item.

Distribution Channel

A chain of businesses or intermediaries through which a good or service passes until it reaches the end customer.