Question
Shortening the credit period A firm is contemplating shortening its credit period from 40 to 30 days and believes that, as a result of this
Shortening the credit period
A firm is contemplating shortening its credit period from 40 to 30 days and believes that, as a result of this change, its average collection period will decline from 44 to 36 days. Bad-debt expenses are expected to decrease from 1.7% to 0.9% of sales. The firm is currently selling 12,400 units but believes that as a result of the proposed change, sales will decline to 10,400 units. The sale price per unit is
$ 55, and the variable cost per unit is $47.the firm has a required return on equal-risk investments of
12.3%.
Evaluate this decision, and make a recommendation to the firm.
(Note - Assume a 365-day year.)
please show formulas on excel
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