Chan Manufacturing Is Considering an Alternate to Its Credit Policy

question 64

Essay

Chan manufacturing is considering an alternate to its credit policy.At present, the firm sells its product at $42 per unit with monthly sales of 61,000 units.Fifteen% of all sales are for cash; the remainder sold on terms of net 30.The present average cost per unit is $13, and the marginal cost for the next 6,000 units is $20 per unit.Sales are expected to increase by 4,000 units per month if credit terms are altered to 3/15, 1/30, net 60.Cash sales are expected to remain at 15% of total sales.It is expected that 25% of future credit sales will be paid after 15 days, 35% after 30 days, and the remainder after 60 days.The company's tax rate is 45%, and its required after-tax rate of return on investments in receivables is 5% after tax.Should the firm alter its credit terms as indicated?

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Definitions:

Gender Identity

Gender identity refers to an individual's personal sense of their own gender, which may or may not correspond to the sex they were assigned at birth.

Personality Development

The growth and changes in an individual's character and behavioral traits over time, influenced by genetic, environmental, and social factors.

Practical and Realistic

Having an approach or mindset focused on dealing with things sensibly and realistically, based on practical rather than theoretical considerations.

Idealistic and Grand

Pertaining to having high ideals or grand ambitions, often characterized by optimism and a desire for significant achievements.