A Firm Is Considering Relaxing Credit Standards, Which Will Result

question 26

Multiple Choice

A firm is considering relaxing credit standards, which will result in annual sales increasing from$1.5 million to $1.75 million, the cost of annual sales increasing from $1,000,000 to $1,125,000, andthe average collection period increasing from 40 to 55 days. The bad debt loss is expected to increase from 1 percent of sales to 1.5 percent of sales. The firm's required return on investments is20 percent. The firm's cost of marginal investment in accounts receivable is__________ .

• A) $9,943
• B) $5,556
• C) $152,778
• D) $12,153

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Definitions:

Ganglia

Structures containing nerve cell bodies, typically located outside of the central nervous system, which relay impulses between neurons.

Celiac Ganglion

A cluster of nerve cells located in the abdomen, part of the sympathetic nervous system, that helps control the digestive system.

Ganglia

Structures containing a collection of nerve cell bodies, typically located outside the central nervous system, that process and relay neuronal signals.

Pulmonary Plexus

A network of nerves located near the lungs that helps regulate the constriction and dilation of the airways and blood vessels in the lungs.