A firm currently sells $500,000 annually with 3% bad debt losses. Two alternative policies are available. Policy A would increase sales by $300,000, but bad debt losses on additional sales would be 8%. Policy B would increase sales by an additional $120,000 over Policy A and bad debt losses on the additional $120,000 of sales would be 15%. The average collection period will remain at 60 days (6 turns per year) no matter the policy decision made. The profit margin will be 20% of sales and no other expenses will increase. Assume an opportunity cost of 20% Make no policy change. Change to only Policy A. Change to Policy B (means also taking Policy A first). All policies lead to the same total firm profit, thus all policies are equal.
A firm currently sells $500,000 annually with 3%
Make no policy change.
Change to only Policy A.
Change to Policy B (means also taking Policy A first).
All policies lead to the same total firm profit, thus all policies are equal.
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