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  • Braam Industries

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    Nice Dela Roca
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    This document compares four credit policy options for a company's annual sales, default rates, costs, and profitability. The current policy has annual sales of $140 million and a default rate of 1.9%, while Option 1 would relax credit requirements and increase annual sales to $158 million but with a higher default rate of 2.9%. Option 2 extends the credit period and Option 3 combines relaxed requirements with an extended period. Option 1 has the highest sales and profit of $75,330, while Option 2 results in a loss of $6.85 million due to its longer receivables period.

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    This document compares four credit policy options for a company's annual sales, default rates, costs, and profitability. The current policy has annual sales of $140 million and a default rate of 1.9%, while Option 1 would relax credit requirements and increase annual sales to $158 million but with a higher default rate of 2.9%. Option 2 extends the credit period and Option 3 combines relaxed requirements with an extended period. Option 1 has the highest sales and profit of $75,330, while Option 2 results in a loss of $6.85 million due to its longer receivables period.

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    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
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    6 views3 pages

    Braam Industries

    Uploaded by

    Nice Dela Roca
    This document compares four credit policy options for a company's annual sales, default rates, costs, and profitability. The current policy has annual sales of $140 million and a default rate of 1.9%, while Option 1 would relax credit requirements and increase annual sales to $158 million but with a higher default rate of 2.9%. Option 2 extends the credit period and Option 3 combines relaxed requirements with an extended period. Option 1 has the highest sales and profit of $75,330, while Option 2 results in a loss of $6.85 million due to its longer receivables period.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
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    of 3

    Default Rate

    Annual Sales % of Sales Amount


    [A] [B] [C]
    Current policy 140,000,000.00 1.90% 2,660,000.00
    Option 1 (Relax credit policy) 158,000,000.00 2.90% 4,582,000.00
    Option 2 (Extend credit period) 149,000,000.00 2.20% 3,278,000.00
    Option 3 (Combination) 167,000,000.00 2.50% 4,175,000.00

    Average Daily Average Daily Average Daily Admin


    Sales Default Amount Cost

    [A] / 365 [C] / 365 [E] / 365

    Current policy 383,561.64 7,287.67 6,136.99


    Option 1 (Relax credit policy) 432,876.71 12,553.42 11,687.67
    Option 2 (Extend credit period) 408,219.18 8,980.82 7,756.16
    Option 3 (Combination) 457,534.25 11,438.36 9,608.22
    Admin Cost Variable Costs of Production
    % of Sales Amount % of Sales Amount Effective Annual Rate
    [D] [E] [F] [G] [H]
    1.60% 2,240,000.00 45.00% 63,000,000.00 6.00%
    2.70% 4,266,000.00 45.00% 71,100,000.00 6.00%
    1.90% 2,831,000.00 45.00% 67,050,000.00 6.00%
    2.10% 3,507,000.00 45.00% 75,150,000.00 6.00%

    Average Daily
    Variable Cost Interest Rate Net present value Profit/(Loss)
    (Net Cash Flow/Interest
    [G] / 365 (1+([H]/365)^[I]) - 1 Rate) - Initial
    Investment
    172,602.74 0.00627 31,354,137.99 -
    194,794.52 0.00676 31,429,468.66 75,330.68
    183,698.63 0.00842 24,499,233.29 (6,854,904.69)
    205,890.41 0.00809 28,309,890.09 (3,044,247.89)
    Receivables Period
    [I]
    38
    41
    51
    49

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