Tara's Textiles currently has credit sales of $22 million per month, an average collection period of...
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Tara's Textiles currently has credit sales of $22 million per month, an average collection period of 58 days, and bad debts equal to 4.5% of sales. Assume that the price of Tara's products is $58 per unit and that the variable costs are $52 per unit. The firm is considering tightening up their credit policy, allowing customers 39 days rather than 58 to pay their bills. With a stricter credit policy in place, sales will fall by 10%, but the average collection period will drop to 39 days and the bad debts percentage will fall to 1%. Determine whether the company should make this change if their cost of capital is 0.8% per month. (Note: Use a 365-day year.) The cost from a decrease in sales is S. (Round to the nearest dollar.) The additional profit from the decreased marginal investment in A/R is $ The additional profit from the decrease in bad debts is $ (Round to the nearest dollar.) The net profit or loss from implementing the proposed plan is $ (Round to the nearest dollar. Enter a negative number for a loss.) Is the proposed plan recommended? (Select from the drop-down menu.) (Round to the nearest dollar) Tara's Textiles currently has credit sales of $22 million per month, an average collection period of 58 days, and bad debts equal to 4.5% of sales. Assume that the price of Tara's products is $58 per unit and that the variable costs are $52 per unit. The firm is considering tightening up their credit policy, allowing customers 39 days rather than 58 to pay their bills. With a stricter credit policy in place, sales will fall by 10%, but the average collection period will drop to 39 days and the bad debts percentage will fall to 1%. Determine whether the company should make this change if their cost of capital is 0.8% per month. (Note: Use a 365-day year.) The cost from a decrease in sales is S. (Round to the nearest dollar.) The additional profit from the decreased marginal investment in A/R is $ The additional profit from the decrease in bad debts is $ (Round to the nearest dollar.) The net profit or loss from implementing the proposed plan is $ (Round to the nearest dollar. Enter a negative number for a loss.) Is the proposed plan recommended? (Select from the drop-down menu.) (Round to the nearest dollar)
Expert Answer:
Answer rating: 100% (QA)
To determine whether the proposed plan is recommended lets calculate the cost from a decrease in sales the additional profit from the decreased margin... View the full answer
Related Book For
Principles Of Managerial Finance
ISBN: 978-0136119463
13th Edition
Authors: Lawrence J. Gitman, Chad J. Zutter
Posted Date:
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