Your first major assignment after your recent promotion at Ice Nine, a drinks manufacturer, involves overseeing the management of accounts receivable and inventory. The first item that you must attend to is a proposed change in credit policy that would relax credit terms from the existing $1/50,$ net $70$ to $2/60,$ net $90$ in hopes of securing new sales. The management at Ice Nine does not expect bad$-$debt losses on its current customers to change under the new credit policy. The following information should aid you in the analysis of this problem:

New sales level $($all credit$)$ $$8,000,000$

Original sales level $($all credit$)$ $$7,000,000$

Contribution margin $25\%$

Percentage of bad$-$debt losses on new sales $8\%$

New average collection period $75$ days

Original average collection period $60$ days

Additional investment in inventory $$50,000$

Pretax required rate of return $15\%$

New cash discount percentage $2\%$

Percentage of customers taking the new cash discount $50\%$

Original cash discount percentage $1\%$

Percentage of customers taking the old cash discount $50\%$

To help the firm decide whether to relax its credit terms, you have been asked to respond to the following questions:

What determines the size of the investment Ice Nine makes in accounts receivable?

If a firm currently buys from Ice Nine under the present trade credit terms of

$1$

$/$

$50$

$,$

net $70$ and decides to forego the trade credit discount and pay on the net day, what is the annualized cost to that firm of foregoing the discount?

If Ice Nine changes its trade credit terms to

$2$

$/$

$60$

$,$

net $90,$ what is the annualized cost to a firm that buys on credit from Ice Nine and decides to forego the trade credit discount and pay on the net day?

What is the estimated change in profits resulting from the increased sales less any additional bad debts associated with the proposed change in credit policy? solve new and old

Estimate the cost of the additional investment in accounts receivable and inventory associated with this change in credit policy. solve new and old

Estimate the change in the cost of the cash discount if the proposed change in the credit policy is enacted. solve new and old

Compare the incremental revenues with the incremental costs. Should the proposed change be enacted?

solve in excel please