Mako Industries has annual credit sales of $2,000,000. Current expenses for the collection department are $50,000,...

   

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Mako Industries has annual credit sales of $2,000,000. Current expenses for the collection department are $50,000, bad-debt losses are 1.00%, and the DSO is 25 days. The firm is considering easing its collection efforts such that collection expenses will be reduced to $35,000 per year. The change is expected to increase bad-debt losses to 2.00% and to increase DSO to 45 days. In addition, sales are expected to increase to $2,425,000. What would be the impact on net income if the firm adopted this new credit policy if the opportunity cost of funds is 12%, the variable cost ratio is 75%, and taxes are 25%? (10 Mako Industries has annual credit sales of $2,000,000. Current expenses for the collection department are $50,000, bad-debt losses are 1.00%, and the DSO is 25 days. The firm is considering easing its collection efforts such that collection expenses will be reduced to $35,000 per year. The change is expected to increase bad-debt losses to 2.00% and to increase DSO to 45 days. In addition, sales are expected to increase to $2,425,000. What would be the impact on net income if the firm adopted this new credit policy if the opportunity cost of funds is 12%, the variable cost ratio is 75%, and taxes are 25%? (10

Answer rating: 100% (QA)

To determine the impact on net income we need to compare the net income under the current credit pol... View the full answer