A company currently sell goods of Tk. 6,00,000 with a terms of net 30 days. Its average collection period is 45 days. The company is planning to increase its sales by extending the credit period to 60 days on all sales that would help increasing sales by 15%. After the changes in credit policy the average collection period is expected to be 75 days. Variable cost per unit is Tk. 80 and selling price is Tk. 100 per unit. The company’s required rate of return on its investment in receivables is 20%. Should the company extend its credit period?
A company currently sell goods of Tk. 6,00,000 with a terms of net 30 days. Its average collection period is 45 days. The company is planning to increase its sales by extending the credit period to 60 days on all sales that would help increasing sales by 15%. After the changes in credit policy the average collection period is expected to be 75 days. Variable cost per unit is Tk. 80 and selling price is Tk. 100 per unit. The company’s required rate of return on its investment in receivables is 20%. Should the company extend its credit period?
Chapter18: The Management Of Accounts Receivable And Inventories
Section: Chapter Questions
Problem 5P
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A company currently sell goods of Tk. 6,00,000 with a terms of net 30 days. Its average collection period is 45 days. The company is planning to increase its sales by extending the credit period to 60 days on all sales that would help increasing sales by 15%. After the changes in credit policy the average collection period is expected to be 75 days. Variable cost per unit is Tk. 80 and selling price is Tk. 100 per unit. The company’s required
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