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The question is complete. 8-4) Tightening Credit Terms Jean Nowak, the new credit manager of Farpoint Communications, was alarmed to find that Farpoint sells on
The question is complete.
8-4) Tightening Credit Terms Jean Nowak, the new credit manager of Farpoint Communications, was alarmed to find that Farpoint sells on credit terms of net 70 days while industry-wide credit terms have recently been lowered to net 30 days. On annual credit sales of $10 million, Farpoint currently averages 78 days of sales in accounts receivable. Nowak estimates that tightening the credit terms to 30 days would reduce annual sales to $9.6 million, but accounts reccivable would drop to 35 days of sales and the savings on investment in them should more than overcome any loss in profit. Farpoint's variable cost ratio is 80%, and taxes are 26%. If the interest rate on finds invested in receivables is 12%, should the change in credit terms be made Step by Step Solution
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