Garcia Industries has sales of $167,500 and accounts receivable of $18,500, and it gives its customers 25 days to pay. The industry average DSO is 27 days, based on a 365-day year. If the company changes its credit and collection policy sufficiently to cause its DSO to fall to the industry average, and if it earns 8.0% on any cash freed-up by this change, how would that affect its net income, assuming other things are held constant? Assume all sales to be on credit. Do not round your intermediate calculations. Hint: focus on the DSO to figure out how much freed-up cash the company will have. Freed-up cash will be invested at 8%.
a. $386.13 b. $601.18 c. $488.77 d. $562.08 e. $537.64