A credit policy specifies how customers qualify for credit, the maximum amount of credit that customers are allowed, the terms of credit sales, and what actions will be taken if customers do not pay on time. To ensure that the credit policy is being followed and that it is achieving the desired objective, it should be monitored. If customers' payment patterns change significantly, the firm should consider changing its credit policy. Which statement best describes whether a proposed change in credit policy should be implemented? A policy with the least effect on sales should be implemented. A policy that increases sales volume should be implemented. A policy that provides the lowest bad debts with the least amount of effort should be implemented. A policy that provides the cash flows with the highest net present value should be implemented. Consider the case of Wallace Company: A new financial manager at the Wallace Company has proposed a change to the company's credit policy to lower the average collection period (ACP) of the customers who forgo the discount by five days. The cost of the increased credit effort is $10 million, and the manager estimates that the company will lose 7% in gross sales as a result. The discount customers will not be affected. The proposed data, including the daily data, is reflected in the following table: Existing Policy Proposed Policy I. General Credit Policy Information Credit terms 2/10 net 30 2/10 net 30 Average collection period (ACP) for all customers ACP for customers who take the discount (10%) ACP for customers who forgo the discount (90%) II. Annual Credit Sales and Costs Credit sales 50.5 days 46.0 days 10.0 days 10.0 days 55.0 days 50.0 days $170,000 $158,100 Amount paid by discount customers (net discount) $16,660 $16,660 Amount paid by nondiscount customers $153,000.00 $141,100 Net credit sales $169,660 $157,760 Variable operating costs (82% of net sales) $139,121.20 $129,363 $0.0 $0.0 $17,000 $17,010 Bad debts Credit evaluation and collection costs III. Daily Credit Sales and Costs Net credit sales $465 $432 Amount paid by discount customers (net discount) $46 $46 Amount paid by nondiscount customers $419 $387 Variable operating costs (82% of net sales) $381 $354 Bad debts $0.0 $0.0 Credit evaluation and collection costs $47 $47 Your job is to review the proposal and make a recommendation. To simplify your analysis, assume: (1) that sales occur evenly throughout the year; (2) that the variable operating costs and the credit evaluation and collection costs are incurred at the time of sale; and (3) that a 365-day year is used to compute the daily figures. Wallace's cost of capital is 7.5%. Complete the following sentences: Wallace net present value (NPV) of institute the proposed policy change, because the existing policy provides , compared to the proposed policy, which provides in daily cash flow, which has at a in daily cash flow, with a net present value of Since this change is expected to have a permanent and continuing effect on Wallace, then this daily difference of value of the firm by will the