Table 15.5 Caren's Canoes Is Considering Relaxing Its Credit Standards to Encourage

question 195

Multiple Choice

Table 15.5
Caren's Canoes is considering relaxing its credit standards to encourage more sales. As a result, sales are expected to increase 15 percent from 300 canoes per year to 345 canoes per year. The average collection period is expected to increase to 40 days from 30 days and bad debts are expected to double the current 1 percent level. The price per canoe is $850, the variable cost per canoe is $650 and the average cost per unit at the 300 unit level is $700. The firm's required return on investment is 20 percent. (Assume a 360-day year)
-What is the cost of marginal investments in accounts receivable under the proposed plan? (See Table 15.5)

• A) $1,817
• B) $1,867
• C) $1,733
• D) $1,617

---

Definitions:

Accounts Payable

Short-term financial obligations to suppliers or creditors for goods and services received but not yet paid for.

Equipment

Tangible assets used in the operation of a business, not intended for sale.

Selling Price

The price at which a product or service is sold to customers, determining the revenue generated from sales activities.

Note Payable

A written promise to pay a specified sum of money, usually with interest, by a certain date.