Roxy International Is Considering Easing Credit Standards to Increase Sales,and

question 29

Multiple Choice

Roxy International is considering easing credit standards to increase sales,and potentially profits.Currently the firm sells 2,000,000 units at a sales price of $7 per unit and variable cost of $5 per unit.Currently the average collection period is 35 days and the bad debt expense is 2% of sales.The required return on investment is 18%.If credit standards are eased,the sales will increase to 2,500,000 units; the ACP will increase to 65 days; and the bad debt expense will increase to 5% All else will remain the same.What is the profit (or loss) associated with easing credit standards?

• A) $176,917.81
• B) $405,000.00
• C) - $418,082.19
• D) $823,082.19

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Definitions:

Probability

A measure of how likely it is that some event will occur; a number expressing the ratio of favorable outcomes to the total number of possible outcomes.

Operant Conditioning

A method of learning that employs rewards and punishments for behavior, where an association is made between a behavior and a consequence for that behavior.

Observational Learning

A learning process where individuals change their behaviors or acquire new information by watching the actions of others.

Classical Conditioning

The learning method that occurs through repeated pairings of two stimuli, resulting in a response that at first is triggered by the second stimulus but in time is triggered by the first stimulus.