Question
The firm wants to extend trade credit to some customers previously considered poor risks. Sales would increase by $25 million. For these customers, the production
The firm wants to extend trade credit to some customers previously considered poor risks. Sales would increase by $25 million. For these customers, the production and selling costs will be 5% more than the firm's gross margin(72.7%). Additional collection costs will be 8,000,000. Of the new accounts generated, 15% will not be collectible. The firm expects 20% of the paying customers will take the 3% discount offered by the firm. Due to procedural changes, there is no additional investment in accounts receivable. Should the firm extend more liberal credit terms?
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