A new financial manager at the Hansborough Company has proposed a change to the companys 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	46.0 days	42.0 days
ACP for customers who take the discount (20%)	10.0 days	10.0 days
ACP for customers who forgo the discount (80%)	55.0 days	50.0 days
II. Annual Credit Sales and Costs
Credit sales	$170,000	$158,100
Amount paid by discount customers (net discount)	$33,320	$33,320
Amount paid by nondiscount customers	$136,000.00	$124,100
Net credit sales	$169,320	$157,420
Variable operating costs (82% of net sales)	$138,842.40	$129,084
Bad debts	$0.0	$0.0
Credit evaluation and collection costs	$17,000	$17,010
III. Daily Credit Sales and Costs
Net credit sales	$464	$431
Amount paid by discount customers (net discount)	$91	$91
Amount paid by nondiscount customers	$373	$340
Variable operating costs (82% of net sales)	$380	$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. Hansboroughs cost of capital is 7.5%.

Complete the following sentences:

Hansboroughshould not institute the proposed policy change, because the existing policy provides$37 in daily cash flow, which has at a net present value (NPV) of , compared to the proposed policy, which provides in daily cash flow, with a net present value of .

Since this change is expected to have a permanent and continuing effect on Hansborough, then this daily difference of will the value of the firm by .