Use the model in File C15 to solve this problem.
a. Refer back to Problem 15-8. Suppose that by offering a 2 percent cash discount for paying within the month of sale, the credit manager of Carol’s Fashion Designs Inc. has revised the collection percentages to 50 percent, 35 percent, and 15 percent, respectively. How will this affect the loan requirements?
b. Return the payment percentages to their base case values—10 percent, 75 percent, and 15 percent, respectively—and the discount to zero percent. Now suppose sales fall to only 70 percent of the forecasted level. Production is maintained, so cash outflows are unchanged. How does this affect Carol’s Fashion Designs’ financial requirements?
c. Return sales to the forecasted level (100%), and suppose collections slow down to 3 percent, 10 percent, and 87 percent for the three months, respectively. How does this affect financial requirements? If Carol’s Fashion Designs went to a cash-only sales policy, how would that affect requirements, other things held constant?