1. Dovola Inc. is in the process of tightening its credit policies to reduce its days sales outstanding (DSO). Dovola Inc. currently has $12,500,000 in accounts receivable, with a DSO of 55 days. The industry average DSO is 30 days. Dovolas CFO does recognize that in tightening credit policies and pressuring customers to pay on time the firm will experience a drop in sales of approximately 10%.

a. What will Dovolas level of accounts receivable be following the proposed changes above? And, what will be the amount the accounts receivable balance is reduced by? Round amounts to the nearest dollar.

b. Briefly explain why this change in accounts receivable management policy may or may not be worth the loss in sales that Dovola Inc. would experience.