Question
Forrester Fashions has monthly credit sales of units with an average collection period of days. The company has a per-unit variable cost of and a
Forrester Fashions has monthly credit sales of units with an average collection period of days. The company has a per-unit variable cost of and a per-unit sale price of . Bad debts currently are % of sales. The firm estimates that a proposed relaxation of credit standards would increase the average collection period to days and would increase bad debts to % of sales, which would rise to units per month. Forrester's cost of capital is % per month. Show all necessary calculations needed to evaluate Forrester's proposed relaxation of credit standards. (Note: Assume a 365-day year.)
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