Blueroot Inc

question 60

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