Question
Kari company that operates below its nominal capacity; It provides credit terms of 30 net days (30 net). The company has 60 million dollars in
"Kari" company that operates below its nominal capacity; It provides credit terms of 30 net days ("30 net"). The company has 60 million dollars in credit sales and the average collection period of the company's claims is 45 days. In order to stimulate (increase) the demand, the company considers 60-day net credit terms.("net 60") If the company makes this change, sales are expected to increase by 15%. After the change, the average receivables collection period is expected to be 75 days, and there will be no difference in the payment behavior of old and new customers. Yes. Variable costs per $1 of additional sales are $0.8, and the company's expected pre-tax rate of return on its investment in receivables is 20 percent. Should the company extend its credit period?
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