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:

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An estimate that provides a range of numbers expected to contain the true value of the parameter being measured.

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Suggested theories developed from minimal evidence, serving as initial steps for additional research.

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The numerical outcomes resulting from standardized tests, often used to evaluate skills, proficiency, or knowledge in various subjects.

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A process of making minor adjustments or modifications to improve the function or performance of a machine, system, or instrument.