Reference no: EM133143151

Question - MIA Co. is considering changing its credit terms from 2/15, n/30 to 3/10, n/30 in order to speed up collections. At present, 40% of MIA Co.'s customers take the 2% discount. Under the new term, discount customers are expected to rise to 50%. Regardless of the credit terms, half of the customers who do not take the discount are expected to pay on time, whereas the remainder will pay 10 days late. The change does not involve a relaxation of credit standards; therefore, bad debt losses (per peso sales) will remain at status quo. Currently bad debts expense is 2% of sales. However, the more generous cash discount terms are expected to increase sales from P2 000 000 to P2 600 000 per year. MIA Co.'s variable cost ratio is 75%, the interest rate on funds invested in accounts receivable is 9%, and the firm's income tax rate is 40%. (360 days/year) What is the incremental after-tax profit from the change in credit terms?