Your first major assignment after your recent promotion at Ice Nine involves overseeing the

management of account receivable and inventory. The fisrt item that you must attend to involves a
proposed change credit policy that involved relaxing credit term from the existing terms 0f 1/50, net
70 to 2/60 net 90 in hopes of securing new sales. The management of 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 : (source : Financial Management, Principles and
Aplications, Titman,Keown,Martin,2014, Page 641)
New Sales level (all credit) $ 8,000,000
Original sales level (all credit) $ 7,000,000
Contribution margin 25%
Percents 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
Pre tax required rate of return 15%
New percent cash discount 2%
Percent of customers taking the new cash discount 50%
Original percent cash discount 1%
Percent of cusomers taking the old cash discount 50%
To help in your decision on relaxing credit terms, you have been asked to respond to the following
questions :
a. What determines the size of investment Ice Nine makes in Account Receivables ?
b. If a firms currently buys from Ice Nine on trade of credit with present terms of 1/50 net to and
decides to forgo the trade credit discount and pay on the next day, what is the annualized cost to
that firm of forgoing the discount ?
c. If Ice Nine changes its trade credit terms to 2/60 net 90, what is the annualized cost to firm that
buys on credit from Ice Nine and decided to forgo the trade credit discount and pay on the next
day ?
d. What is the estimated change in profit resulting from the increased sales less any additional bad
debts associated with the proposed change in credit policy ?
e. Estimate the cost of additional investment in account receivable and inventory associated with this
change in credit policy ?
f. Estimate the change in the cost of cash discount if the proposed change in credit policy is enacted
!
g. Compute the incremental revenues with the incremental costs. Should the proposed change be
enacted ?

1 SOAL INI BERSIFAT RAHASIA “HARUS DIKEMBALIKAN” | MILIK UNIVERSITAS MERCU BUANA