To increase sales from their present annual IDR 26 billion, de'Laba Trading Company, a wholesaler, may...
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To increase sales from their present annual IDR 26 billion, de'Laba Trading 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: Increase in sales from previous level (in billions) Average collection period for incremental sales (days) CREDIT POLICY B C 1.5 50 A IDR 3.8 38 1.2 80 D 1.0 110 The prices of its products average IDR 25 per unit, and variable costs average IDR 20 per unit. No bad-debt losses are expected. If the company has a pre-tax opportunity cost of funds of 30 percent, which credit policy should be pursued? Why? Explain with calculation (Assume a 360-day year). To increase sales from their present annual IDR 26 billion, de'Laba Trading 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: Increase in sales from previous level (in billions) Average collection period for incremental sales (days) CREDIT POLICY B C 1.5 50 A IDR 3.8 38 1.2 80 D 1.0 110 The prices of its products average IDR 25 per unit, and variable costs average IDR 20 per unit. No bad-debt losses are expected. If the company has a pre-tax opportunity cost of funds of 30 percent, which credit policy should be pursued? Why? Explain with calculation (Assume a 360-day year).
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Related Book For
Fundamentals Of Financial Management
ISBN: 9780273713630
13th Revised Edition
Authors: James Van Horne, John Wachowicz
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