A Firm Is Considering Relaxing Credit Standards, Which Will Result

question 173

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, and the 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 is 20 percent. The firm's cost of marginal investment in accounts receivable is ________. (Assume a 360-day year.)

• A) $5,556
• B) $9,944
• C) $12,153
• D) $152,778

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The act of making a decision among various options through mental processes.

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