Exercise II.

Assess old and new trade credit policy based on the profit and loss account reconciliation method.

Collection period in days

Current trade credit policy

Buyers structure

30%

30%

25%

15%

New trade credit policy

40%

40%

20%

SO

Current sales revenues

Forecasted sales revenues

Variable expenses share

Fixed expenses value

S1

V

F

Current

Forecasted

Money market interest rate

dO d1

10

30

60

80

15

30

45

1000000

USD

1850000

USD

65%

200000

USD

Discount rate Number of days within discount

3%

7

6%

14

20%