Solved: 1 Which credit policy should the company use 2

Notice that

1. Which credit policy should the company use?

2. Notice that in option 3, the default rate and administrative costs are above those in option 2.
Is this plausible? Why or why not?

Sterling Wyatt, the president of Howlett Industries, has been exploring ways of improving the
company's financial performance. Howlett manufactures and sells office equipment to retailers.
The company's growth has been relatively slow in recent years, but with an expansion in the
economy, it appears that sales may increase more rapidly in the future. Sterling has asked
Andrew Preston, the company's treasurer, to examine Howlett's credit policy to see if a change
can help increase profitability.

The company currently has a policy of net 30. As with any credit sales, default rates are always
of concern. Because of Howlett's screening and collection process, the default rate on credit is
currently only 1.6 percent. Andrew has examined the company's credit policy in relation to other
vendors, and he has found three available options.

The first option is to relax the company's decision on when to grant credit. The second option is
to increase the credit period to net 45, and the third option is a combination of the relaxed credit
policy and the extension of the credit period to net 45. On the positive side, each of the three
policies under consideration would increase sales. The three policies have the drawbacks that
default rates would increase, the administrative costs of managing the firm's receivables would
increase, and the receivables period would increase. The effect of the credit policy change
would impact all four of these variables to different degrees. Andrew has prepared the following
table outlining the effect on each of these variables:

1 Which credit policy should the company use 2 Notice that

ANSWER
https://solvedquest.com/1-which-credit-policy-should-the-company-use-2-notice-that/

Reach out to freelance2040@yahoo.com for enquiry.

Powered by TCPDF (www.tcpdf.org)