1. Which credit policy should the company select based on the information provided?

2. In option 3, the default rate and the administrative costs both exceed those in Option 2. Why?

Projected 1st Default Administrative Year Sales rate costs $ 96,250,000 1.60% 2.20% $ 110,687,500 2.50% 3.20% $ 105,875,000 1.80% 2.40% $ 115,500,000 220% 3.00% Receivables period 37 40 Current policy Option 1 Option 2 Option 3 50 48 Variable costs Interest rate 40% 6.25% Projected 1st Default Administrative Year Sales rate costs $ 96,250,000 1.60% 2.20% $ 110,687,500 2.50% 3.20% $ 105,875,000 1.80% 2.40% $ 115,500,000 220% 3.00% Receivables period 37 40 Current policy Option 1 Option 2 Option 3 50 48 Variable costs Interest rate 40% 6.25%