You are looking at changing the credit policy on credit sales from n60 to either n30 or n45. If the collection period is decreased, you can expect decreases in average accounts receivable, the opportunity cost financing charge on accounts receivable, bad debts expenses, and sales. You have gathered the following data.

Required:
Prepare calculations to determine which option is more profitable.

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Option Current Annual Sales Unit selling price Contribution margin per unit Terms Cost of capital Accounts receivable Annual sales decrease Bad debts 3,000,000 $200 $80 n60 16% 493,151 n30 n45 $280,000 300,000 $200,000 $230,000 $240,000