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Dhar Corporation is contemplating a change in its credit policy from net 60 to net 30...

Dhar Corporation is contemplating a change in its credit policy from net 60 to net 30 in order to speed up its collections and reduce the cost of its investment in receivables. Currently, the firm sells 5 million units at a price of $10 and an average cost of $7.50 per unit. Under the proposed new credit terms, management believes that sales will decline to 4.5 million units if the same selling price is retained. Management intends to keep the selling price at $10 because the average cost is expected to increase to $9.00 per unit with the reduced sales and production volumes. All customers currently pay on credit exactly on the due date and have no bad debts. Dhar expects this will continue to be the case under the new terms. If Dhar’s cost of capital is 8%, how will the cost of Dhar’s investment in accounts receivable change if it changes its credit policy? a) It will decrease by $134,795. b) It will decrease by $226,849. c) It will decrease by $295,890. d) It will decrease by $361,644.

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ekkarill92 answered 2 years ago
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