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Lengthening the credit period   Parker Tool is considering lengthening its credit period from 30 to 60...

Lengthening the credit period   Parker Tool is considering lengthening its credit period from 30 to 60 days. All customers will continue to pay on the net date. The firm currently bill $450,000 for sales and has ​$320,000 in variable costs. The change in credit terms is expected to increase sales to ​$540,000. Bad-debt expenses will increase from 1​% to 1.5​% of sales. The firm has a required rate of return on​ equal-risk investments of 20​%. (Note​: Assume a​ 365-day year.)

a.  What additional profit contribution from sales will be realized from the proposed​ change?

b.  What is the cost of the marginal investment in accounts receivable​?

c.  What is the cost of the marginal bad debts​?

d.  Do you recommend this change in credit​ terms?

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jeff jeffy answered 1 year ago
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