1. To increase sales from their present annual $24 million, Kim Chi Company, a wholesaler, may try more libcral 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: D CREDIT POLICY B C $1.8 $1.2 60 90 Increase in sales from previnus level (in millions) Average collection period for incremental sales (days) $2.8 45 $.6 144 The prices 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 pre-tax opportunity cost of funds of 30 percent, which credit policy should be pursued? Why? (Assume a 360-day year.) 2. Upon reflection, Kim Chi Company has estimated that the following pattern of bad debt losses will prevail if it initiates more liberal credit terms: A CREDIT POLICY B 6% 10% D Bad-debt losses on incremental sales 3% 15%