Blueroot Inc. is considering a change in its financing policy.
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. $38,448
c. $40,370
d. $34,699
e. $36,526
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