A new financial manager at Wallace Company has proposed a change to the companys credit policy in order to lower the average collection period of the customers who forgo the discount by 10 days The cost of the increased credit effort is $10 million, and the manager estimates that the company will lose 3 in gross sales as a result The discount customers will not be affected The proposed data, including the daily data, is reflected in the following table Existing Policy Proposed Policy I General Credit Policy Information Credit terms 2 10 net 30 2 10 net 30 (Average collection period (ACP) for all customers 48 3 days 39 8 days ACP for customers who take the discount (15 ) 10 0 days 10 0 days ACP for customers who forgo the discount (85 ) 55 0 days 45 0 days II Annual Credit Sales and Costs ($ milllions) Amount paid by discount customers $284 $284 Amount paid by nondiscount customers $1,445 $1,394 Net credit sales $1,729 $1,678 Variable operating costs (82 of net sales) $1,418 $1,376 Bad debts $0 0 $0 0 Credit evaluation and collection costs $170 $180 00 III Daily Credit Sales and Costs ($ thousands) Net sales $4,803 $4,661 Amount paid by discount customers $789 $789 Amount paid by nondiscount customers $4,014 $3,872 Variable operating costs (82 of net sales) $3,939 $3,822 Credit evaluation and collection costs $472 $500 Your job is to review the proposal and make a recommendation To simplify your analysis, assume that sales occur evenly throughout the year, that the variable operating costs and the credit evaluation and collection costs are incurred at the time of sale, and that a 360 day year is used to compute the daily figures Wallaces cost of capital is 10 PLEASE HELP COMPLETE THE FOLLOWING SENTENCES OPTIONS ARE BOLD IN PARENTHESES Wallace (should, should not) institute the proposed policy change, because the existing policy provides a net present value of ($289, $4,730, $389, $329) compared to the proposed policy, which provides a net present value of ($289, $337, $4,603, $329) Since this change is expected to have a permanent and continuing effect, this daily difference of ( $52, $40, $127, $142) will (increase, decrease) the value to the firm by ($511,196, $14,398,848, $143,999, $457,196)

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A new financial manager at Wallace Company has proposed a change to the companys credit policy in order to lower the average collection period of

A new financial manager at Wallace Company has proposed a change to the companys credit policy in order to lower the average collection period of the customers who forgo the discount by 10 days. The cost of the increased credit effort is $10 million, and the manager estimates that the company will lose 3% 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	48.3 days	39.8 days
ACP for customers who take the discount (15%)	10.0 days	10.0 days
ACP for customers who forgo the discount (85%)	55.0 days	45.0 days
II. Annual Credit Sales and Costs ($ milllions)
Amount paid by discount customers	$284	$284
Amount paid by nondiscount customers	$1,445	$1,394
Net credit sales	$1,729	$1,678
Variable operating costs (82% of net sales)	$1,418	$1,376
Bad debts	$0.0	$0.0
Credit evaluation and collection costs	$170	$180.00
III. Daily Credit Sales and Costs ($ thousands)
Net sales	$4,803	$4,661
Amount paid by discount customers	$789	$789
Amount paid by nondiscount customers	$4,014	$3,872
Variable operating costs (82% of net sales)	$3,939	$3,822
Credit evaluation and collection costs	$472	$500

Your job is to review the proposal and make a recommendation. To simplify your analysis, assume that sales occur evenly throughout the year, that the variable operating costs and the credit evaluation and collection costs are incurred at the time of sale, and that a 360-day year is used to compute the daily figures. Wallaces cost of capital is 10%.

PLEASE HELP COMPLETE THE FOLLOWING SENTENCES. OPTIONS ARE BOLD IN PARENTHESES.

Wallace (should, should not) institute the proposed policy change, because the existing policy provides a net present value of ($289, $4,730, $389, $329) compared to the proposed policy, which provides a net present value of ($289, $337, $4,603, $329) .

Since this change is expected to have a permanent and continuing effect, this daily difference of (-$52, -$40, $127, $142) will (increase, decrease) the value to the firm by ($511,196, $14,398,848, $143,999, $457,196) .