Question: Use the information in the table below to answer questions 1 - 5. Current Proposed Sales 1,234,567 % change in sales 0.08 Cost of capital

Use the information in the table below to answer questions 1 - 5.

Current

Proposed

Sales

1,234,567

% change in sales

0.08

Cost of capital

0.065

0.065

Credit terms

30

50

Bad debt

0.05

0.10

1. What is change in sales if the company adopts the proposed policy?

2. What is the change in the cost of receivables if the firm adopts the proposed policy?

3. What is the change in the cost of bad debt if the firm adopts the proposed policy?

4. What is the change in profit?

5. Should the firm change its policy? Justify your answer.

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