Q1. Best Value Company has provided the following information:

Current Annual Sales (Credit Sales): P3,600,000

Terms: 45 Days

Interest Rate or Cost of Finance: 15% p.a.

Potential New Policy:

Analyst 1 has suggested to offer a discount to customers with this policy: 1/15 net 45. Analyst 1 expects that 50% of customers will take advantage of the discount. Analyst 2 however says that customers will not be enticed and for 50% of customers to take advantage of the discount, the policy should be 2/15 net 45. Should the company follow the recommendation of Analyst 2? Why or why not? Show your solutions.

Q2. Why do you think an increasing accounts receivables balance (without the corresponding increase in sales) is a cost to a business?

Q3. The company's end of month receivables is 70% of monthly sales. From January to April, sales amount to P100,000 each month. For the rest of the year (May to December), sales amount to P50,000 each month. The company extends credit terms to customers up to a maximum of 20 days. Assuming 360 days in a year and 30 days in a month, what can you say about the company's receivables management? Does the company need to improve its collections? Please show your solutions.