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The company is considering two different approaches to receivables management:

Method 1: Period of credit allowed – days of receivables 10

Yearly revenue estimate 7 000

Method 2: Period of credit allowed – days of receivables 20

Yearly revenue estimate 15 000

In both cases the company’s gross margin is expected at 12%, and the cost of debt necessary to finance receivables is 13%.

What’s the difference (in terms of profit before tax) between the two choices?