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Dear OTA:

Credit policy - As treasurer of the Universal Bed Corp, Aristotle Procrustes is worried about his bad debt ratio, which is currently running at 6%. He believes that imposing a more stringent credit policy might reduce sales by 5% and reduce the bad debt ratio to 4%. If the cost of goods sold is 80% of the selling price, should Mr. Procrustes adopt the more stringent policy?

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Hi there,
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<br>Lets say that for every $10 of sales, they incur 60 cents of bad debt, meaning that they only collect $9.40 of every $10. If they impose that more stringent policy, then sales will drop from $10 to $9.50. As a result, bad debt would then ...

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