A firm is considering relaxing credit standards, which will result in annual sales increasing from P1.5 million to P1.75 million, the cost of annual sales increasing from P1,000,000 to P1,125,000, 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?

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter3: Evaluation Of Financial Performance
Section: Chapter Questions
Problem 7P
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A firm is considering relaxing credit standards, which will result in annual sales increasing from P1.5 million to P1.75 million, the cost of annual sales increasing from P1,000,000 to P1,125,000, 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?

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