Question: Use the model in File C15 to solve this problem

Use the model in File C15 to solve this problem.
a. Refer to Problem 15-15. When Bowers analyzed her proposed credit policy changes, she found that they would reduce Muscarella’s value and therefore should not be enacted. Bowers has reevaluated her sales estimates because all other firms in the industry have recently tightened their credit policies. She now estimates that sales would decline to only $2.8 million if she tightens the credit policy to 30 days. Would the credit policy change be profitable under these circumstances?
b. On the other hand, Bowers believes that she could tighten the credit policy to net 45 days and pick up some sales from her competitors. She estimates that sales would increase to $3.3 million and that the DSO would fall to 50 days under this policy. Should Bowers enact this change?
c. Bowers also believes that if she leaves the credit policy as it is, sales will increase to $3.4 million and the DSO will remain at 60 days. Should Bowers leave the credit policy alone or tighten it as described in either part (a) or part (b)? Which credit policy produces the highest value for Muscarella Corporation?

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  • CreatedNovember 24, 2014
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