Drop down options:
1. should, should not
2. 313, 267, 4454, 367
3. 4329, 267, 313, 315
4. -46, 125, -52, 133
5. decrease, increase
6. 165599, 449996, 16558675, 478796
10. Analyzing proposed changes in credit policy A credit policy covers 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 that reduces the average collection period should be implemented A policy that provides the cash flows with the highest net present value should be implemented A policy that provides the lowest average collection period should be implemented A policy that brings the company's average collection period in line with the industry average should be implemented. A new financial manager at Wallace Company has proposed a change to the company's credit policy in order to lower the average collection period of the customers who forgo the discount by five days. The cost of the increased credit effort is $10 million, and the manager estimates that the company will lose 3% in gross sales as a result. The discount customers will not be affected. The proposed data, including the daily data, is reflected in the following table. Existing Policy Proposed Policy 2/10 net 30 46.1 days 10.0 days 52.5 days 2/10 net 30 41.9 days 10.0 days 47.5 days I. General Credit Policy Information Credit terms (Average collection period (ACP) for all customers ACP for customers who take the discount (15%) ACP for customers who forgo the discount (85%) II. Annual Credit Sales and Costs ($ milllions) Credit sales Amount paid by discount customers Amount paid by nondiscount customers Net credit sales Variable operating costs (82% of net sales) Bad debts Credit evaluation and collection costs TIL. Daily Credit Sales and costs ($ thousands) Net credit sales Amount paid by discount customers Amount paid by nondiscount customers Variable operating costs (82% of net sales) Credit evaluation and collection costs $1,600 $267 $1,360 $1,627 $1,334 $0.0 $160 $1,552 $267 $1,312 $1,579 $1.295 $0.0 $170.00 $4,519 $742 $3,778 $3,706 $444 $4,386 $742 $3,644 $3,597 $472 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. Wallace's cost of capital is 10% Complete the following sentences. compared to Wallace institute the proposed policy change, because the existing policy provides a net present value of the proposed policy, which provides a net present value of Since this change is expected to have a permanent and continuing effect, this daily difference of will the value to the firm
