Problem 1. MAILA Co. is considering changing its credit terms from 2/15, n/30 to 3/10, n/30 in order to speed up collections. At present, 40% of MAILA Co.'s customers take the 2% discount. Under the new term, discount customers are expected to rise to 50%. Regardless of the credit terms, half of the customers who do not take the discount are expected to pay on time, whereas the remainder will pay 10 days late. The change does not involve a relaxation of credit standards; therefore bad debt losses (per peso sales) will remain at status quo. Currently bad debts expense is 2% of sales. However, the more generous cash discount terms are expected to increase sales from P2 000 000 to P2 600 000 per year. MAILA Co.'s variable cost ratio is 75%, the interest rate on funds invested in accounts receivable is 9%, and the firm's income tax rate is 40%. (360 days/year) a. What is the D50 before the change in credit policy b. What is the D50 after the change in credit policy c. What is the incremental carrying cost on receivable? d. What is the incremental after tax profit from the change in credit terms? Problem 2. IRENE Company plans to tighten its currently liberal credit policy. This new (tight) policy will decrease the average number of days in collection form 63 days to 50 days and reduce the ratio of credit sales to total revenue from 70% to 50%. The company estimates that projected sales would be 10% less if the proposed policy will be implemented. The firm's short-term interest cost is 15%. Projected sales for the coming year are P50 million. a. Calculate the peso impact on accounts receivable of this proposed change in policy (360 days/year)? Problem 3. CLARISSE Merchandize Inc., has net credit sales of P1 440 000 yearly with credit terms of n/30, which is also the average collection period. CLARISSE does not offer discounts for early payment, thus, customers take the full 30 days to pay. (Each \"If" is an independent situation unless otherwise stated, Use 360 days/year) a. What is the average receivable balance? b. What is the accounts receivable turnover? c. If CLARISSE offered 2% discount for payment in 10 days and every customer took advantage of the new terms, what would the new average receivable balance be? d. Continuing from the situation in (c.). if CLARISSE reduces its bank loans which cost 10%, by the cash generated from reduced receivables, what will be the net gain/loss to the firm? e. If the new trade terms of 2/10, n/30 will increase sales by 15% because the discount makes CLARISSE's price competitive and CLARISSE earns 20% on sales before discounts. should it offer the discount? Problem 4. LAUREN Inc. currently has sales of P1 million, and its D50 is 30 days, the financial manager estimates that offering longer credit terms would increase the days sales outstanding to 50 days and increase the sales to P1.2 million. However, bad debt losses, which were 2% on the old sales. would amount to 5% only on the incremental sales. Variable costs are 80% of sales: LAUREN has a 15% receivable financing cost. (360 d/y) a. What would the annual incremental pre-tax profit be if LAUREN extended its credit period? Problem 5. CEDRICK Inc. currently sells P12 million per annum. Its credit period and D50 are both 30 days, and 1.5% of its sales end up as bad debts. The credit manager estimates that, if the firm extends its credit period to 40 days so that its DSO increases to 40 days, sales will increase by P3 million, but their bad debts losses on the incremental sales will be 2.5%. Variable costs are 60%, and the cost of carrying receivables is 10%. Tax rate is 40%. (Assume 360 days per year). a. Compute the incremental investment required to finance the increase in receivables if the change is implemented. b. What would be the incremental cost of carrying receivables? c. What would be the effect of those changes in net income? Problem 6. KATE Co. is planning to introduce changes in its collection procedures. The new procedures are expected to make the collection period longer by 10 days, although there will be no change in bad debts. For the coming year, KATE Co.'s budgeted sales is P32 400 000 or P90 000 per day. Short-term interest rates are expected to average at 9% per annum. a. As a result of the changes in collection procedures, KATE Co.'s average AR balance will increase (decrease) by? b. To make the changes in collection procedures cost-beneficial, the minimum savings in t-nllnrl-:r\ nar-Fl- 'Fnr l-L'n r-nmlnn unu r-lv'nlllrJ Inn')