1. To increase sales from their present annual $24 million, Jefferson Knu Monroe Company, a wholesaler, may try more liberal credit standards. Currently, the firm has an average collection period of 30 days. It believes that with increasingly liberal credit standards, the following will result:

from previous level (in millions) 1 $2.8 $1.8 $1.2 $.6 Averaze collection period for Credit policy

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incremental sales (days) 1 45 60 90 144 A B C D The price of its products average $20 per unit, and variable costs average $18 per unit. No bad-debt losses are expected. If the company has a pretax opportunity cost of funds of 30 percent, which credit policy should be pursued?

(Assume a 360-day year.)