To increase sales from their present annual $10 million, ABC Company, a wholesaler, may try more liberal credit standards. Currently, the firm has an average collection period of 30 days. It believes that, with increasingly liberal credit standards, the following will result:

	Credit Policy
	A	B	C	D
Increase in sales from previous level	$1.5M	$1.2M	$0.8M	$0.5M
Avg. collection period for incr. sales (days)	45	60	75	90

The prices of its products average $24 per unit, and variable costs average $20 per unit. The company has estimated that the following pattern of bad-debt losses will prevail if it initiates more liberal credit terms:

	Credit Policy
	A	B	C	D
Bad-debt losses on incremental sales	4%	8%	15%	20%

The company has a pre-tax opportunity cost of funds of 25%. (Assume a 360-day year.)

1. How much additional account receivable will incur if Policy A is adopted?

Group of answer choices

None of them

$156,250.00

$200,000.00

$187,500.00

$166,666.67

Flag question: Question 2

Question 26 pts

How much additional investment (in providing the additional AR) will be required if Policy A is adopted?

Group of answer choices

$166,666.67

None of them

$187,500.00

$39,062.50

$156,250.00

Flag question: Question 3

Question 36 pts

How much additional bad-debt losses will incur on the incremental sales if Policy B is adopted?

Group of answer choices

$200,000.00

$60,000.00

None of them

$96,000.00

$250,000.00

Flag question: Question 4

Question 46 pts

Which credit policy should be pursued?

Group of answer choices

Policy A and B

Policy C only

Policy A, B, and C

Policy A, B, C, and D

None of them

Policy A only

Policy B only

Answer rating: 100% (QA)

For Kim Chi company If we look at the figures and combine all effects of incremental sal... View the full answer