Purchase Solution

# Credit Decision Analysis

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A firm currently makes only cash sales. It estimates that allowing trade credit on terms of net 30 would increase monthly sales from 200 to 220 units per month. The price per unit is \$101 and the cost (in present value terms) is \$80. The interest rate is 1 percent per month.

A) Should the firm change its credit policy

B)Would the answer change if 5 percent of all customers will fail to pay their bills

C) what if 5 percent of only new customers fail to paytheir bills? The current customers take advantage of the 30 days of free credit but remain safe credit risks

##### Solution Summary

The solution evaluates the credit policy and answers whether the firm should change its credit policy.

##### Solution Preview

A firm currently makes only cash sales. It estimates that allowing trade credit on terms of net 30 would increase monthly sales from 200 to 220 units per month. The price per unit is \$101 and the cost (in present value terms) is \$80. The interest rate is 1 percent per month.

A) Should the firm change its credit policy

B)Would the answer change if 5 percent of all customers will fail to pay their bills

C) what if 5 percent of only new customers fail to paytheir bills? The current customers take advantage of the 30 days of free credit but remain safe credit risks

A) Should the firm change its credit policy

Current ...

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