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Ted&Barny Canoes Co. is considering relaxing its credit standards to encourage more sales. As a result,...

Ted&Barny Canoes Co. is considering relaxing its credit standards to encourage more sales. As a result, sales are expected to increase 15 percent from 300 canoes per year to 345 canoes per year. The average collection period is expected to increase to 40 days from 30 days and bad debts are expected to double the current 1 percent level. The price per canoe is $850, the variable cost per canoe is $650 and the average cost per unit at the 300 unit level is $700. The firm's required return on investment is 20 percent. (Assume a 360-day year). Should the firm implement the proposed plan?

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Expert Solution

Since by implementing the relaxed credit policy the profit of the firm increase from $ 38950 to $ 42818, the proposed plan should be implemented.

All the calculations are shown below

jeff jeffy answered 1 year ago
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