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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Definitions:

Conscious Thought

The awareness of one's own mental processes, including thoughts, feelings, and sensations.

Unconscious Thought

A rephrased definition: The processing of information or decision-making that occurs without conscious awareness, influencing behaviors and attitudes.

Psychoanalysis

A set of psychological and psychotherapeutic theories and methods, originating in the work and theories of Sigmund Freud, aimed at exploring the unconscious motives that influence behavior.

Behaviorism

A psychological approach that emphasizes the study of observable behavior and the role of environmental forces in shaping it, often excluding subjective mental states from the study.