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A firm is contemplating shortening its credit period from 40 to 30 days. They believe it will result in the company's average collection period...
A firm is contemplating shortening its credit period from 40 to 30 days. They believe it will result in the company's average collection period decline from 45 to 36 days. Bad debt expenses are expected to decrease from 1.5% to 1.0% of sales. The firm is currently selling 12,000 units, but believes the new change will decline sales to 10,000 units. The sale price per unit is $56 and the variable cost is $45 per unit. The firm has a required return on equal risk investments of 25%. Assume 365 day year, evaluate the decision and make a recommendation to the firm.
