Tara Textiles

Accounts receivable changes without bad debts Tara's Textiles currently has credit sales of $355 million per year and an average collection period of 58 days. Assume that the price of Tara's products is $61 per unit and that the variable costs are $55 per unit. The firm is considering an accounts receivable change that will result in a 20.8% increase in sales and a 19.4% increase in the average collection period. No change in bad debts is expected. The firm's equal-risk opportunity cost on its investment in accounts receivable is 13.9%. a. Calculate the additional profit contribution from new sales that the firm will realize if it makes the proposed change. b. What marginal investment in accounts receivable will result? c. Calculate the cost of the marginal investment in accounts receivable. d. Should the firm implement the proposed change? What other information would be helpful in your analysis? a. The additional profit contribution from the increase in sale units is $. b. The marginal investment in accounts receivable is $. c. The cost of marginal investment in accounts receivable is $. d. Should the firm implement the proposed change? What other information would be helpful in your analysis? "The additional profitability of $7, 262, 952 exceeds the additional costs of $3, 125, 053. However, one would need estimates of bad debt expenses, clerical costs, and some information about the uncertainty of the sales forecast prior to adoption of the policy." Is the above statement true or false