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Instructions: Use Excell to complete problem
An employee who recently graduated with a finance degree recommended that Tom Cray adjust his credit terms from 2/10, net 30 to 3/20, net 45 and that both the credit standards and the collection policy be relaxed. According to the employee, such a change would cause sales to increase from $3.6 million to $4.0 million. Currently, 62.5% of the companys customers pay on Day 10 of the billing cycle and take the discount, 32% pay on Day 30, and 5.5% pay (on average) on Day 60. If the new credit policy is adopted, Cray estimated that 72.5% of customers would take the discount, 10% would pay on Day 45, and 17.5% would pay late, on Day 90. Bad debt losses for both policies are expected to be trivial. To help decide whether to adopt the new policy, Cray has asked you to answer the following questions: Show All Work! What would the DSO (days sales outstanding) be if the current credit policy is maintained? What would be the DSO be if the proposed policy is adopted? What is the dollar amount of discounts granted under the current and the proposed credit policies?