Problem: A company's credit policy is based on terms of net 60, but it expects to average a days sales outstanding in the coming yeat of 1 days on estimated credit sales of $15 million. Its bad debt losses are expected to average 3% of sales Another policy is being considered which involves more strict credit standards. This policy would be based on terms of net 30, an expected des sales outstanding of 34 days, estimated credit sales of $14 million, and a bad debt loss rate of 2% of sales. Its variable cost ratio is 60%, and its cost of borrowing short-term is 5%. If it switches to the new policy, what will be the expected change in interest expense?

Problem: A company's credit policy is based on terms of net 60, but it expects to average a days sales outstanding in the coming yeat of 1 days on estimated credit sales of $15 million. Its bad debt losses are expected to average 3% of sales Another policy is being considered which involves more strict credit standards. This policy would be based on terms of net 30, an expected des sales outstanding of 34 days, estimated credit sales of $14 million, and a bad debt loss rate of 2% of sales. Its variable cost ratio is 60%, and its cost of borrowing short-term is 5%. If it switches to the new policy, what will be the expected change in interest expense?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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