Kari-Kidd Corporation currently gives credit terms of “net 30 days.” It has $60 million in credit sales, and its average collection period is 45 days. To stimulate demand, the company may give credit terms of “net 60 days.” If it does instigate these terms, sales are expected to increase by 15 percent. After the change, the average collection period is expected to be 75 days, with no difference in payment habits between old and new customers. Variable costs are $0.80 for every $1.00 of sales, and the company’s before-tax required rate of return on investment in receivables is 20 percent. Should the company extend its credit period? (Assume a 360-day year.)

Answer rating: 100% (QA)

Yes the company extend its credit period To solve this question we proceed as follows Old rec... View the full answer