A company is currently selling 100,000 units of its product at shs 50 each unit. At the current level of production, the cost per unit is shs 45, variable cost per unit being shs 40. The company is currently extending one month’s credit to its customers. It is thinking of extending credit period to two months in the expectation that sales will increase by 25 per cent. If the required rate of return (before-tax) on the firm’s investment is 30per cent, is the new credit policy desirable?

Answer rating: 100% (QA)

To determine whether the new credit policy is desirable we need to calculate the impact of the chang... View the full answer