Seconds Ticking Limited ('STL") is based in Hong Kong and designs and manufactures low- end stopwatches for sale worldwide. The monthly sales are one million stopwatches. The selling price and variable cost of a stopwatch are HK$225 and HK$175, respectively. Currently, STL makes all of its sales to distributors on credit, with an average collection period of three months. After attending a recent seminar on receivables management, the CEO Michael Yung has asked his CFO Linda Li to look into how STL might alter its credit management policy. He has suggested that STL shorten its current credit period offered to distributors to two months and offering a 4% cash discount for payment before the end of first month. This is similar to the terms that many of STL's competitors offer their customers. The CEO estimates that the discount could boost existing sales by as much as 20% per month and that 90% of STL's distributors would take advantage of the discount. The Sales Director (Allan Ho), however, is not as optimistic as the CEO on the additional revenue that this new policy could bring in. STL has a weighted average cost of capital equivalent to 0.75% monthly and discount factors for this are: Month 1 0.993 Month 2 0.986 Month 3 0.979 Required: 1. What is the three-month net present value of the return from one month's sales under the existing policy? Show all workings. (2 marks) 2. 3 What is the expected three-month net present value of the return from one month's sales under the new credit management policy? Show all workings. (2 marks) Demonstrate financially in HK$ whether the proposed new credit management policy would be acceptable to STL. Show all workings. (2 marks) Taking the Sales Manager's concern into consideration, what is the minimum monthly sales that STL has to achieve under the new policy so that it will not be made worse off by the change of credit management policy? (2 marks) 4