Travel and Tow Trailers Inc $$56250

question 1

Multiple Choice

Travel and Tow Trailers Inc. makes small trailers for light-duty towing behind SUVs and small pickup trucks. Its trailers typically sell for $2,500. Many of its customers have asked for credit terms to aid in purchasing the trailers. The firm's finance department has estimated the following profile for its light-duty trailers and customer base: Annual sales: 10,000 trailers
Annual production costs per trailer: $1,500
Lost sales if credit is not provided for customers: 2,000 trailers
Default rate if all customers purchase on credit: 3.00%
What is the dollar value of bad debts the firm expects to accumulate over a year? Given this amount, what is the maximum average amount per customer that the firm should spend on credit screening?

• A) $450,000; $45.00
• B) $450,000; $56.25
• C) $4,500,000; $450.00
• D) $4,500,000; $$562.50

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