In order to increase sales from their present annual $35 million, ABC Company, a retailer, is considering 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:attached image.

The prices of its products average $30 per unit, and variable costs average $25.50 per unit. If the company has a before- tax opportunity cost of 25%, which credit policy should be pursued?

Credit Policy A B C D Increase in sales from previous level (in millions) $6.5 $4.5 $2.0 $1.0 Average collection period for incremental sales (days) 45 60 90 150 Bad-debt losses on incremental sales 2% 4% 10% 15%