The Boyd Corporation has annual credit sales of $1.6 million. Current expenses for the collection department are
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The Boyd Corporation has annual credit sales of $1.6 million. Current expenses for the collection department are $35,000, bad-debt losses are 1.5%, and the days sales outstanding is 30 days. The firm is considering easing its collection efforts such that collection expenses will be reduced to
$22,000 per year. The change is expected to increase bad-debt losses to 2.5%
and to increase the days sales outstanding to 45 days. In addition, sales are expected to increase to $1,625,000 per year.
Should the firm relax collection efforts if the opportunity cost of funds is 16%, the variable cost ratio is 75%, and taxes are 40%?
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Related Book For
Intermediate Financial Management
ISBN: 9781337395083
13th Edition
Authors: Eugene F. Brigham, Phillip R. Daves
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