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

question 49

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.
-What is the net result of implementing the proposed plan? (See Table 15.5)

• A) +$3,952
• B) -$3,868
• C) +$2,083
• D) -$2,083

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Definitions:

Optimal R&D

describes the most efficient level of spending and resource allocation for research and development activities to maximize innovation and the return on investment.

Optimal R&D

The most efficient allocation of resources towards research and development activities to maximize innovation and returns.

Interest-Rate Cost-Of-Funds

The expense related to borrowing funds, usually expressed as a percentage of the total amount borrowed, influenced by the prevailing interest rates.

Interest-Cost Of Funds Curve

The Interest-Cost of Funds Curve represents the relationship between the cost of borrowing and the amount of funds borrowed in financial markets.