2. Your company is considering a modification to your credit policy, as follows:
Increases sales $5 million per year
Average collection period for incremental sales = 45 days
No bad-debt losses are expected.
The company's variable cost of sales is 80%.
Cost of capital is 20%
Should you adopt either the policy? Why?© BrainMass Inc. brainmass.com July 22, 2018, 4:44 pm ad1c9bdddf
Increased sales = 5 million
Increase in receivables = 5 million *45/360= 0.625 ...
Reasoning and computation given.