Table 15.5
Caren's Canoes 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.
-A firm is considering relaxing credit standards which will result in an increase in annual sales from $3 million to $3.75 million, a decrease in the cost of annual sales from $2,225,000 to $2,000,000, an increase in additional profit contribution from sales of $10,000, and an increase in the average collection period of 15 days, from 20 to 35 days. The bad debt loss is expected to increase from 1 percent to 1.5 percent of sales. The firm's required return on investments is 15 percent. The net result of the firm relaxing its credit standards is
A) $10,000.
B) -$16,250.
C) -$26,875.
D) -$16,875.
Correct Answer:
Verified
Q217: Table 15.5
Caren's Canoes is considering relaxing its
Q222: If the level of bad debt attributable
Q231: An increase in accounts receivable turnover due
Q232: By increasing collection expenditures, the firm can
Q233: If the cash discount period is increased,
Q234: Table 15.5
Caren's Canoes is considering relaxing its
Q237: Increased collection expenditures should reduce the investment
Q237: Table 15.5
Caren's Canoes is considering relaxing its
Q240: Maggie's Gold Coins, Inc. is considering shortening
Q240: Company _ are the procedures followed to
Unlock this Answer For Free Now!
View this answer and more for free by performing one of the following actions
Scan the QR code to install the App and get 2 free unlocks
Unlock quizzes for free by uploading documents