Tightening Credit Terms Maxwell Corp. distributes the $$Smart$$ brand of

electronic controller systems. The company currently has a credit policy of $1/10,$

net $40,$ though on average only $20\%$ of customers pay in $10$ days and take the

discount, while another $30\%$ pay on average in $15$ days yet still take the

unearned discount. The company's remaining customers pay on average in $50$

days. Bad debt losses are $3\%$ of sales. The company's sales are currently

$$600,000$ per month, all on credit. Maxwell is thinking of restructuring its credit

and collections department, with the goal of eliminating all unearned discounts

and reducing bad debt losses to $1\mathrm{.}5\%.$ With this new policy, the company

believes that sales will fall by $5\%,$ that $40\%$ of customers will pay in $10$ days and

obtain the discount, and that the remaining customers will pay in $40$ days.

Maxwell's variable costs are $60\%$ of sales, its monthly collections department

expense is expected to rise by $$6,000$ to $$20,000,$ and its opportunity cost on

funds is $12\%.$ Maxwell's tax rate is $30\%.$

$1.$ Should the company implement the new policy? Clearly explain your rationale

$(300$ words minimum$).(6$ mark$)$

$2.$ What is the maximum percentage sales decline that the company could take and

still proceed with the new policy? $(0\mathrm{.}5$ mark$)$