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Question
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
Answer
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