2. Notice that in Option 3, the default rate and the administrative costs both exceed those in Option 2. Is this plausible? Why or why not?

Sterling Wyatt, the president of Ballaballa Industries, has been exploring ways of improving the company’s financial performance. Ballaballa manufactures and sells office equipment to retailers. The company’s growth has been relatively slow in recent years, but with an expansion in the economy, it appears that sales may increase more rapidly in the future.
Sterling has asked Evan Bradds, the company’s treasurer, to examine Ballaballa’s credit policy to see if a change can help increase profitability.
The company currently has a policy of net 30. As with any credit sales, default rates are always of concern. Because of Ballaballa’s screening and collection process, the default rate on credit is currently only 1.6 per cent.
Evan has examined the company’s credit policy in relation to other vendors, and he has found three available options

Transcribed Image Text:

Default Annual rate sales Administrative costs (% of Receivables period (millions) sales) (% of sales)