Questions:
1. What are the elements of a good credit policy? Evaluate Progressive Farm Equipment's credit policy.
2. Why is the increase in accounts receivables of concern to the board of directors? Are they justified in their demand for a tighter credit policy? Why?
3. What is the amount of annual expense to the fur as a result of the delay in collections? What other risks do such delays entail?
4. Calculate the cost of foregoing the 2% cash discount offered under the 2/10, net 30 and 2/10 net 60 terms respectively. Given that most retailers could take short-term loans from banks at the rate of 14% or less, evaluate the attractiveness of each policy.
5. What are some other ways in which the company could speed up collections and reduce the receivables?
6. Why has this slow buildup in accounts receivable occurred? Could it have been avoided? How? Please explain.
7. Develop the pro forma financial statements for the company under the two credit policy alternatives, i.e. 2/10, net 60; and 2/10 net 30 using the assumptions given. What would be the impact on the firm's return on sales, return on investment, and return on equity?