Forrester Fashions has annual credit sales of 250,000 units with an average collection period of 70 days. The company has a per-unit variable cost of $20 and a per unit sale price of $30. Bad debts currently are 5% of sales. The firm estimates that a proposed relaxation of credit standards would not affect its 70-day average collection period but would increase bad debts to 7.5% of sales, which would increase to 300,000 units per year. Forrester requires a 12% return on investments. Show all necessary calculations required to evaluate Forrester's proposed relaxation of credit standards.
Forrester Fashions has annual credit sales of 250,000 units with an average collection period of 70 days. The company has a per-unit variable cost of $20 and a per unit sale price of $30. Bad debts currently are 5% of sales. The firm estimates that a proposed relaxation of credit standards would not affect its 70-day average collection period but would increase bad debts to 7.5% of sales, which would increase to 300,000 units per year. Forrester requires a 12% return on investments. Show all necessary calculations required to evaluate Forrester's proposed relaxation of credit standards.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Transcribed Image Text:Forrester Fashions has annual credit sales of 250,000
units with an average collection period of 70 days. The
company has a per-unit variable cost of $20 and a per
unit sale price of $30. Bad debts currently are 5% of
sales. The firm estimates that a proposed relaxation
of credit standards would not affect its 70-day
average collection period but would increase bad
debts to 7.5% of sales, which would increase to
300,000 units per year. Forrester requires a 12%
return
on
investments.
Show
all
necessary
calculations required to evaluate Forrester's proposed
relaxation of credit standards.
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