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

question 207

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.
-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

• A) $5,556.
• B) $9,943.
• C) $12,153.
• D) $152,778.

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Definitions:

Financial Services Market

A market that comprises establishments engaged in transactions and activities related to financial services like banking, investment, and insurance.

Apple Card

A credit card created by Apple Inc. designed to be used with Apple Pay, offering cashback rewards and various features integrated with iOS.

Credit Card Use

The application of credit cards as a payment method where the cardholder borrows funds to pay for goods and services with the promise to repay the borrowed amount along with any agreed-upon fees or interest.

Market Development

A growth strategy where a company seeks to increase sales by promoting its existing products in new markets or to new segments.