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NEED (in dollars, round to nearest dollar) -Reduction in profit contribution from a decline in sales? -Benefit from reduced marginal investment in A/R? -Cost savings
NEED (in dollars, round to nearest dollar)
-Reduction in profit contribution from a decline in sales?
-Benefit from reduced marginal investment in A/R?
-Cost savings from reduction in bad debts?
-Net profit or loss from implementing the proposed plan?
-IS THE PLAN RECOMMENDED?
Shortening the credit period A firm is contemplating shortening its credit period from 45 to 35 days and believes that, as a result of this change, its average collection period will decline from 50 to 43 days. Bad-debt expenses are expected to decrease from 1.6% to 1.1% of sales. The firm is currently selling 11,700 units but believes that as a result of the proposed change, sales will decline to 9,700 units. The sale price per unit is $58, and the variable cost per unit is $43. The firm has a required return on equal-risk investments of 11.5%. Evaluate this decision, and make a recommendation to the firm. (Note: Assume a 365-day year.)Step by Step Solution
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