EFU Group is considering changing its creditperiod from “net 45" (which has resulted in 8 A/R"Turns" per year) to "net 60" (which is expected toresult in 6 A/R “Turns" per year).EFU Group is currently producing a single productwith variable costs of $150 and a selling price of$180. Additional annual credit sales of $180,000from new customers are forecasted, in addition tothe current $1.5 million in annual credit sales.The before-tax opportunity cost for each dollar offunds "tied-up" in additional receivables is 30%.Ignoring any additional bad-debt losses that mayarise, should EFU Group relax their credit period?

In the given situation, EFU group is evaluating whether it is beneficial to extend the accounts…

Answered: m “net - year) t

Business

Accounting

m “net - year) t

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter18: The Management Of Accounts Receivable And Inventories

Section: Chapter Questions

Problem 5P

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