Furston Inc. currently has sales of $1 million. Your credit period and days of sales outstanding are
Question:
Furston Inc. currently has sales of $1 million. Your credit period and days of sales outstanding are both 30 days, and 1 percent of your sales end up as bad debt. Furston's credit manager estimates that if the company extends its credit period to 45 days so that its days of sales outstanding increase to 45 days, sales will increase by $100,000, but its bad debt losses will increase by 3 percent. . Variable costs are 40 percent, and the cost of holding receivables, r, is 15 percent. Assume a tax rate of 40 percent and 365 days a year.
9. Use the income statement approach to find the incremental earnings before taxes for this proposal.
11. Use the incremental analysis approach to find the incremental cost of carrying accounts receivable
12. Use the incremental analysis approach to find the incremental earnings before taxes for this proposal.
Intermediate Financial Management
ISBN: 978-1285850030
12th edition
Authors: Eugene F. Brigham, Phillip R. Daves