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Sunshine Hippos has a credit collection problem. Last year it took an average of 88 days for customers to pay. The company has been approached
Sunshine Hippos has a credit collection problem. Last year it took an average of 88 days for customers to pay. The company has been approached by Fat Joey's Totally Legitimate Collection Agency who, for a fee of $50,000 a year, can reduce the average collection period to 4 days. Sunshine believe that this would scare away some of their more sensitive customers, reducing expected sales from the current level of $2,500,000 to $2,200,000. Sunshine expects that their profit margin would stay at the current 15%. Management also believes that they can generate a return of 20% on any cash freed up. Should the company adopt the policy? Support your answer by calculating the net change. Ff B
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