The Boyd Corporation has annual credit sales of $1.6 million. Currentexpenses for the collection department are $35,000, bad-debt losses are1.5%, and the days sales outstanding is 30 days. The firm is consideringeasing its collection efforts such that collection expenses will be reduced to$22,000 per year. The change is expected to increase bad-debt losses to 2.5%and to increase the days sales outstanding to 45 days. In addition, sales areexpected to increase to $1,625,000 per year.Should the firm relax collection efforts if the opportunity cost of funds is16%, the variable cost ratio is 75%, and taxes are 40%?
The Boyd Corporation has annual credit sales of $1.6 million. Currentexpenses for the collection department are $35,000, bad-debt losses are1.5%, and the days sales outstanding is 30 days. The firm is consideringeasing its collection efforts such that collection expenses will be reduced to$22,000 per year. The change is expected to increase bad-debt losses to 2.5%and to increase the days sales outstanding to 45 days. In addition, sales areexpected to increase to $1,625,000 per year.Should the firm relax collection efforts if the opportunity cost of funds is16%, the variable cost ratio is 75%, and taxes are 40%?
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter22: Providing And Obtaining Credit
Section: Chapter Questions
Problem 5P: Relaxing Collection Efforts The Boyd Corporation has annual credit sales of 1.6 million. Current...
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The Boyd Corporation has annual credit sales of $1.6 million. Current
expenses for the collection department are $35,000, bad-debt losses are
1.5%, and the days sales outstanding is 30 days. The firm is considering
easing its collection efforts such that collection expenses will be reduced to
$22,000 per year. The change is expected to increase bad-debt losses to 2.5%
and to increase the days sales outstanding to 45 days. In addition, sales are
expected to increase to $1,625,000 per year.
Should the firm relax collection efforts if the opportunity cost of funds is
16%, the variable cost ratio is 75%, and taxes are 40%?
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