The Dream Corp has annual credit sales of $2 million. Current expenses for the collection department are $40,000, bad-debt losses are 1.5%, and the days sales outstanding is 35 days. The firm is considering easing its collection efforts such that collection expenses will be reduced to $18,000 per year. The change is expected to increase bad-debt losses to 2.5% and to increase the days sales outstanding to 50 days. In addition, sales are expected to increase to $2.2 million per year.

Should the firm relax collection efforts if the opportunity cost of funds is 12%, the variable cost ratio is 80%, and taxes are 25%?

The Dream Corp has annual credit sales of $2 million. Current expenses for the collection department are $40,000, bad-debt losses are 1.5%, and the days sales outstanding is 35 days. The firm is considering easing its collection efforts such that collection expenses will be reduced to $18,000 per year. The change is expected to increase bad-debt losses to 2.5% and to increase the days sales outstanding to 50 days. In addition, sales are expected to increase to $2.2 million per year. Should the firm relax collection efforts if the opportunity cost of funds is 12%, the variable cost ratio is 80%, and taxes are 25% ? Yes, profits grow by $19,860 No, profits fall by $963 No, profits fall by $9,075 Yes, profits grow by $2,548