Shortening the credit period A firm is contemplating shortening its credit period from 40 to 30 days and believes that, as a result of this change, its average collection period will decline from 47 to 36 days. Bad-debt expenses are expected to decrease from 1.6% to 1.1% of sales. The firm is currently selling 12,400 units but believes that as a result of the proposed change, sales will decline to 10,400 units. The sale price per unit is $57, and the variable cost per unit is $47. The firm has a required return on equal-risk investments of 11.2%. Evaluate this decision, and make a recommendation to the firm. (Note: Assume a 365-day year.) The reduction in profit contribution from a decline in sales is $ (Round to the nearest dollar. Enter as a negative number.) The benefit from the reduced marginal investment in A/R is $ (Round to the nearest dollar.) The cost savings from the reduction in bad debts is $. (Round to the nearest dollar.)

Shortening the credit period A firm is contemplating shortening its credit period from 40 to 30 days and believes that, as a result of this change, its average collection period will decline from 47 to 36 days. Bad-debt expenses are expected to decrease from 1.6% to 1.1% of sales. The firm is currently selling 12,400 units but believes that as a result of the proposed change, sales will decline to 10,400 units. The sale price per unit is $57, and the variable cost per unit is $47. The firm has a required return on equal-risk investments of 11.2%. Evaluate this decision, and make a recommendation to the firm. (Note: Assume a 365-day year.) The reduction in profit contribution from a decline in sales is $ (Round to the nearest dollar. Enter as a negative number.) The benefit from the reduced marginal investment in A/R is $ (Round to the nearest dollar.) The cost savings from the reduction in bad debts is $. (Round to the nearest dollar.)

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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Concept explainers

Conversion Cycle

Conversion cycle is also known as cash cycle or net operating cycle. Conversion cycle refers to how much time a company takes to turn its investments which is done from stock or any other financial resources into cash flows from sales.

Question

Shortening the credit period A firm is contemplating shortening its credit period from 40 to 30 days and believes that, as a result of
this change, its average collection period will decline from 47 to 36 days. Bad-debt expenses are expected to decrease from 1.6% to 1.1% of
sales. The firm is currently selling 12,400 units but believes that as a result of the proposed change, sales will decline to 10,400 units. The
sale price per unit is $57, and the variable cost per unit is $47. The firm has a required return on equal-risk investments of 11.2%. Evaluate
this decision, and make a recommendation to the firm. (Note: Assume a 365-day year.)
CCIDE
The reduction in profit contribution from a decline in sales is $
(Round to the nearest dollar. Enter as a negative number.)
The benefit from the reduced marginal investment in A/R is $
(Round to the nearest dollar.)
The cost savings from the reduction in bad debts is $. (Round to the nearest dollar.)

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