Read the attached case and answer the following questions:

1. Under each of the two alternative proposals, what is the effective cost of foregoing the available discount. If potential credit customers can borrow from local banks at 7% or less, should they pass up the opportunity to take the discount?
2. If a customer passes on the discount under either proposal, what does this imply about the customer's financial position?
3. Evaluate the two proposals. Should either proposal be accepted, or should the company continue with its present terms?

- Pro Forma Income Statement and Balance Sheet data shown in Exhibit 1 are based on projected figures for 2020if no credit policy change is implemented