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    Credit policy

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

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    Solution Preview

    Under current scheme
    Gross profit = (1-80%)=20%
    Loss due to bad debt = 6%
    Net profit = ...