5. A firm has current sales of 200 lakh. The firm has unutilized capacity; therefore, with a...

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5. A firm has current sales of 200 lakh. The firm has unutilized capacity; therefore, with a view to boost its sales, it is considering lengthening its credit period from 30 days to 45 days. The average collection period will also increase from 30 to 45 days. Bad-debt losses are estimated to remain constant at 3 per cent of sales. The firm's sales are expected to increase by 36 lakh. The variable production, administrative and selling costs are 70 per cent of sales. The firm's corporate tax rate is 35 per cent, and it requires an after- tax return of 15 per cent on its investment. Should the firm change its credit period?

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