Use the information in the table below to answer questions 1 - 6.

	Current	Proposed
Sales	1,000,000
% change in sales		0.02
Cost of capital	0.075	0.075
Credit terms	30	70
Bad debt	0.05	0.09

1. What is the net profit under the current policy?

2. What is change in sales if the company adopts the proposed policy?

3. What is the change in the cost of receivables if the firm adopts the proposed policy?

4. What is the change in the cost of bad debt if the firm adopts the proposed policy?

5. What is the change in profit?

6. Should the firm change its policy? Justify your answer.

* I add this problem down to make it clean and how can you answer the questions

Use the information in the table below to determine whether the firm should change its credit terms. Justify your answer.

	Current	Proposed
Sales	5,000,000
% change in sales		0.05
Cost of capital	0.12	0.12
Credit terms	15	45
Bad debt	0.05	0.15

2. Use the information in the table below to determine whether the firm should change its credit terms. Justify your answer.

	Current	Proposed
Sales	4,000,000
% change in sales		-0.06
Cost of capital	0.04	0.04
Credit terms	45	15
Bad debt	0.06	0.02

PROBLEM 1	Current	Proposed
Sales	$5,000,000
% change in sales		0.03
Cost of capital	0.12
Credit terms	15	45
Bad debt	0.05	0.15
New sales	5,150,000
Old sales	5,000,000
Change	150,000
ARB new	634,931.51
ARB old	205,479.45
Change	429,452.06
Cost of change	51,534.25
BD new	95,239.73
BD old	10,273.97
Change	84,965.76
Sales	150,000.00
Cost of AR	(51,534.25)
BD	(84,965.76)
Change in profit	13,499.99
Change policy because profit will increase

PROBLEM 2	Current	Proposed
Sales	4,000,000
% change in sales		-0.06
Cost of capital	0.04
Credit terms	45	15
Bad debt	0.06	0.02
New sales	3,760,000
Old sales	4,000,000
Change	(240,000)
ARB new	154,520.55
ARB old	493,150.68
Change	(338,630.13)
Cost of change	(13,545.21)
BD new	3,090.41
BD old	29,589.04
Change	(26,498.63)
Sales	(240,000.00)
Cost of AR	13,545.21
BD	26,498.63
Change in profit	(199,956.16)
Don't change policy because profit will decrease