Worksheet Designed to Calculate Incremental Asset Requirements and Capital Change No credit changes With changes Difference K L M N P Investment in receivables 116,7 Inventory needed 168.0 Total 284,7 Capital charge/Cost of ca 37.0 New Assumptions Sales Scenario $1 S2 S3 S4 1460 1500 1460 1520 1450 VC/Sales 75% 75% 75% 77% 76% Inventory/Sales 12% 13% 12% 10% 12% ACP 20 15 20 25 25 Worksheet to Evaluate The Credit Changes for 2016 (in Thousands) Required return 13% 12% 13% 14% 11% No credit changes With changes Difference Proportion of taking the discount 60% 65% 60% 50% 60% Sales 1400,2 Bed debt 1,0% 0,9% 1,0% 1,1% 1,30% Bad debt expense 18.2 Discounts taken 0 Net sales 1382,0 Variable costs 1050,2 Fixed costs 252,0 Earnings before taxes 79,8 Taxes 40% 31.9 Net income 47.9 Capital charge Benefit/Loss 37.0 10.9 In question 9 please pick scenario 2 or 3 or 4, solve it and provide the appropriate comment to your solution (compare with the base case, etc.) 9. Morgan Stanley decided to sell an interest in Stanley Products to Judith Leffe in order to obtain capital to finance the company's growth. Leffe and Stanley decide to carefully examine the firm's credit policy. They agree that Stanley's initial set of estimates can and should be firmed up before a final decision is reached. They also agree that Stanley collectively evaluated two potentially divisible changes. That is, he simultaneously evaluated a tightening of credit standards and a change in credit terms from net 30 to 3/10, net 30. They decide to first evaluate the change in credit terms, assuming no change in credit standards. After some discussion, Leffe and Stanley can't agree on a final set of estimates. They think it is a good idea to evaluate the changes in credit terms for the scenarios listed below to see if any differences affect the decision. S-1 and S-2 represent scenarios that Stanley is having trouble deciding between. S-3 is Leffe's best-guess (most-likely) scenario and S-4 was developed by a mutual friend, Tim Roberts, who is familiar with the company (Set the "sales discount" to 03 in all scenarios.)