The chapter’s opening feature introduces Barbara Manzi and her business, Manzi Metals, a distributor of aluminum, steel, titanium, brass, and other alloys. Manzi Metals generates $3 million in annual sales. Assume that all sales are cash sales and that Manzi’s net profit margin is 30%. Manzi’s buyers would like to either use credit cards with their purchases or buy on credit. Therefore, Manzi has decided to pursue one of two plans (neither plan will impact cash sales nor alter current costs as a percent of sales):

Plan A. Manzi accepts credit cards. This plan is expected to yield new credit sales equal to 20% of current cash sales. Cost estimates of this plan as a percent of net credit sales are: credit card fee, 4.8%; recordkeeping, 1.2%.

Plan B. Manzi grants credit directly to qualified buyers. This plan is expected to yield new credit sales equal to 24% of current cash sales. Cost estimates of this plan as a percent of net credit sales are: uncollectibles, 6.7%; collection expenses, 1.3%; recordkeeping, 2.0%.

Required I. Compute the added monthly net income (loss) expected under

(a) Plan A and

(b) Plan B.
2. Should Manzi pursue either plan? Discuss the financial and nonfinancial factors relevant to this decision.