The document analyzes 3 alternative credit policies for a company currently with $671,142 net income and $300,000 in bad debt loss. Policy 1 increases sales by $3,000,000 but reduces net income and increases bad debt. Policy 2 increases sales and net income slightly but bad debt increases substantially. Policy 3 increases sales by $2,000,000, net income by $214,074 and reduces bad debt by $20,000 - making it the best option.

1. 1
Mini Case II
Natalia Ivanov
Simmons College
Professor J. Barry Lin
GSM: 435 Finance
Fall 2009

2. 2
The company has to choose the third alternative credit policy.
The results of the current credit policy are the Net income of $671,142 with the Bad Debt
loss of $300,000.
Alternative Policy 1
Projected Incoem Statement
Current Policy Change
Gross Sales $15,000,000.00 $12,000,000.00 $3,000,000.00
Less $ discount $299,250.00 $140,400.00 $158,850.00
Net Sales $14,700,750.00 $11,859,600.00 $2,841,150.00
Vrb. Production Costs $12,000,000.00 $9,600,000.00 $2,400,000.00
Fixed and Other Costs $800,000.00 $800,000.00 $0.00
Profit before credt costs and taxes $1,900,750.00 $1,459,600.00 $441,150.00
Credit Costs
Carring Costs $80,219.18 $41,030.00 $39,189.18
Bed debt loss $750,000.00 $300,000.00 $450,000.00
Profit before tax $1,070,530.82 $1,118,570.00 -$48,039.18
Tax $428,212.33 $447,428.00 -$19,215.67
Net Income $642,318.49 $671,142.00 -$28,823.51
Alternative Policy 2
Projected Incoem Statement
Current Policy Change
Gross Sales $17,000,000.00 $12,000,000.00 $5,000,000.00
Less $ discount $359,550.00 $140,400.00 $219,150.00
Net Sales $16,640,450.00 $11,859,600.00 $4,780,850.00
Vrb. Production Costs $13,600,000.00 $9,600,000.00 $4,000,000.00
Fixed and Other Costs $800,000.00 $800,000.00 $0.00
Profit before credt costs and taxes $2,240,450.00 $1,459,600.00 $780,850.00
Credit Costs $0.00
Carring Costs $98,367.12 $41,030.00 $57,337.12
Bed debt loss $1,020,000.00 $300,000.00 $720,000.00
Profit before tax $1,122,082.88 $1,118,570.00 $3,512.88
Tax $448,833.15 $44,742,800.00 -$44,293,966.85
Net Income $673,249.73 $671,142.00 $2,107.73
Alternative Policy 3

3. 3
Projected Incoem Statement
Current Policy Change
Gross Sales $14,000,000.00 $12,000,000.00 $2,000,000.00
Less $ discount $178,360.00 $140,400.00 $37,960.00
Net Sales $13,821,640.00 $11,859,600.00 $1,962,040.00
Vrb. Production Costs $11,200,000.00 $9,600,000.00 $1,600,000.00
Fixed and Other Costs $800,000.00 $800,000.00 $0.00
Profit before credt costs and taxes $1,821,640.00 $1,459,600.00 $362,040.00
Credit Costs $0.00
Carring Costs $66,279.45 $41,030.00 $25,249.45
Bed debt loss $280,000.00 $300,000.00 -$20,000.00
Profit before tax $1,475,360.55 $1,118,570.00 $356,790.55
Tax $590,144.22 $44,742,800.00 -$44,152,655.78
Net Income $885,216.33 $671,142.00 $214,074.33
With the first alternative policy the Net Income will decrease and the and Bad Debt loss
increase by $450,000 with the sales increase $3,000. With the second policy the Net
Income and the Bad Debt loss will increase by $2,107.73 and $720,000 with the sales
increase by $5,000. With the third policy the Net Income and the Bad Debt loss will
increase by $214,074.33 and (-$20,000) with the sales increase by $2,000. Since the third
alternative credit policy follows by the decrease of the Bad Debt by $20,000 in regards to
the current policy and the highest increase of the Net Income it is the best choice for the
company. This policy also does not account on the highest increase of sales and requires
only $2,000 sales increase when the first or the second policies require the higher
increases of sales. Therefore, it is easy for the company to achieve the increase of the Net
Income without the high increase in sales.