Forrester Fashions has monthly credit sales of 20,000 units with an average collection period of 60 days.

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Forrester Fashions has monthly credit sales of 20,000 units with an average collection period of 60 days. The company has a per-unit variable cost of $20 and a per-unit sale price of $30. Bad debts currently are 5% of sales. The firm estimates that a proposed relaxation of credit standards would increase the average collection period to 90 days and would increase bad debts to 7.5% of sales, which would rise to 30,000 units per month. Forrester’s cost of capital is 1% per month. Show all necessary calculations needed to evaluate Forrester’s proposed relaxation of credit standards.

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Principles Of Managerial Finance

ISBN: 9781292400648

16th Global Edition

Authors: Chad Zutter, Scott Smart

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