verbusiness Corporation has been reviewing its credit policies. The credit standard it has been applying have resulted in an annual credit sales of $5,000,000.00. Its average collection period is 30 days with a bad debts/loss ratio of 1%.  Everbusiness Corporation is considering a reduction in its credit standards. As a result, it expects incremental credit sales of $400,000.00 of which the average collection period would be 60 days, in which the bad BCR to sales for Everbusiness Corporation is 70%. The required investment on receivables is 15%. Evaluate the relaxation in credit standards that Everbusiness Corporation is considering. Use 0.04% per year/365 days. Provide detailed explanation and solutions.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Everbusiness Corporation has been reviewing its credit policies. The credit standard it has been applying have resulted in an annual credit sales of $5,000,000.00. Its average collection period is 30 days with a bad debts/loss ratio of 1%.  Everbusiness Corporation is considering a reduction in its credit standards. As a result, it expects incremental credit sales of $400,000.00 of which the average collection period would be 60 days, in which the bad BCR to sales for Everbusiness Corporation is 70%. The required investment on receivables is 15%. Evaluate the relaxation in credit standards that Everbusiness Corporation is considering. Use 0.04% per year/365 days.

Provide detailed explanation and solutions.

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