5. After comparing the credit policies of other firms, Helen is exploring whether Muscarella should offer a cash discount for early payment. She estimates that if terms of 2/10 net 30 are offered sales will increase to $3.5 million and 15% of the customers would take the cash discount by paying on Day 10 (DSO-discount customers). The customers who do not take the cash discount are expected to pay on average on Day 50 (DSO-nondiscount customers). Under this policy collection costs would increase to $200,000 and bad debts would decrease to 4.5%. Should Muscarella offer cash discounts under these credit terms? Why or why not?

Chapter 15 discusses aspects of managing short-term assets. including credit management. Use this formatted Excel spreadsheet to answer questions on the scenarios below. [Add information from the scenario into the Input Data section and then refer to Key Outputs section of the spreadsheet for answers to the posed questions. Percentages need to be entered in decimal format, for instance 3% would be entered as .03.) Click SubmitAssignment to type in the answer the following scenarios: Helen Bowers. the new credit manager of the Muscarella Corporation. was alarmed to find that Muscarella sells on credit terms of net 50 days whereas industryawide credit terms have recently been lowered to net 30 days. On annual credit sales of$3 million. Muscarella currently averages 60 days' sales in accounts receivable. Bowers estimates that tightening the credit terms to 30 days would reduce annual sales to $2.6 million, but accounts receivable would drop to 35 days of sales. She also expects the level of bad debts to decrease from its current level of 5% to 3% with the change in credit terms, because the Ioss in sales will likelyr include many customers who are classied as having poorer credit than those who continue to purchase from Muscarella. in addition. collection costs will increase from $150,000 to $173000 because the collection department will put more effort into collecting delinquent accounts. Muscarella's variable cost ratio is 70% and its ma rgina! tax rate is 40%. [This information is shown on the spreadsheet provided.)