Question: The Pettit Corporation has annual credit sales of 2 million
The Pettit Corporation has annual credit sales of $2 million. Current expenses for the collection department are $30,000, bad debt losses are 2 percent, and the days sales outstanding is 30 days. Pettit is considering easing its collection efforts so that collection expenses will be reduced to $22,000 per year. The change is expected to increase bad debt losses to 3 percent and to increase the days sales outstanding to 45 days. In addition, sales are expected to increase to $2.2 million per year. Should Pettit relax collection efforts if the opportunity cost of funds is 12 percent, the variable cost ratio is 75 percent, and its marginal tax rate is 40 percent? All costs associated with production and credit sales are paid on the day of the sale.
Answer to relevant QuestionsBey Technologies is considering changing its credit terms from 2/15, net 30, to 3/10, net 30, to speed collections. At present, 40 percent of Bey’s paying customers take the 2 percent discount. Under the new terms, ...The Meyer Company must arrange financing for its working capital requirements for the coming year. Meyer can (a) Borrow from its bank on a simple interest basis (interest payable at the end of the loan) for one year at a 12 ...Outline the investment process and indicate the types of decisions that are necessary at each step of the process.Why is it important for every investor to monitor his or her investment position on a continuous basis? What would happen if the monitoring function is ignored?Janis Rafferty purchased 100 shares of Gold Depot common stock at the beginning of January for $25.00 per share. Janis received a $1.25 dividend payment from the company at the end of December. At that time, the stock was ...
Post your question