Question
In: Finance
A firm is contemplating shortening its credit period from 45 to 35 days and believes that,...
A firm is contemplating shortening its credit period from 45 to 35 days and believes that, as a result of this change, its average collection period will decline from 51 to 43 days. Bad-debt expenses are expected to decrease from 1.6 % to 1.1 % of sales. The firm is currently selling 11,900 units but believes that as a result of the proposed change, sales will decline to 9,900 units. The sale price per unit is $ 55 , and the variable cost per unit is $ 45 . The firm has a required return on equal-risk investments of 11.9 % . Evaluate this decision, and make a recommendation to the firm. (Note: Assume a 365-day year.)
The reduction in profit contribution from a decline in sales is
$ (Roundto the nearest dollar. Enter as a negativenumber.)
The benefit from the reduced marginal investment inA/Ris
$
The cost savings from the reduction in bad debts is
$
The net profit or loss from implementing the proposed plan is
$
Solutions
jeff jeffy answered 11 months agoRelated Solutions
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A firm is contemplating shortening its credit period from 40 to 30 days and believes that,...
A firm is contemplating shortening its credit period
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Bad-debt expenses are expected to decrease from 1.5% to 1% of
sales. The firm is currently selling 12,000 units but believes that
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