A company is considering increasing the period of credit allowed to customers from 30 days to 45 days. Annual sales are currently 1,200,000, and annual profits are 100,000. It is anticipated that allowing extended credit would increase sales by 15%, while net profit margins would be unchanged. The working capital is financed by using an overdraft costing 10% per annum. Assume that there is no change in the absolute level of the inventory or account payable. What is the financial effect of the proposal (assume a year is 360 days)? Reduction in profit of 10,000 Increase in profit of 10,000 Increase in profit of 15,000 increase in profit of 7,750
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