Question: Firm X has sales of 5 000 000 3 000 000 are for cash

Firm X has sales of $5,000,000; $3,000,000 are for cash, but two customers who generate sales of $2,000,000 pay after 30 days. Management believes that sales will increase by 20 percent if all customers have 30 days to pay. Should the firm change its credit policy given the following information?
a. The cost of the additional goods sold is 70 percent of sales.
b. Credit checks and collection costs will be $5,000.
c. Three percent of the new sales will be uncollectible.
d. The cost of borrowing the funds to carry the receivables is 12 percent.

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  • CreatedMarch 19, 2015
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