Minnerly Motors wants to tighten its credit policy. On annual credit sales of $6.5 million,...
80.2K
Verified Solution
Link Copied!
Question
Finance
Minnerly Motors wants to tighten its credit policy. On annual credit sales of $6.5 million, Minnerly Motors currently averages 85 days of sales in accounts receivable. The CFO estimates that tightening the credit terms from net 70 to net 30 would reduce annual sales by 10%, but DSO would drop to 35 days and the savings on investment in them should more than overcome any loss in profit. Minnerly Motors variable cost ratio is 85%. If the interest rate on funds invested in receivables is 16%, should the change in credit terms be made? Calculate the impact of the credit policy change on the pre-tax profit of the firm to justify your decision
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
- Unlimited Question Access with detailed Answers
- Zin AI - 3 Million Words
- 10 Dall-E 3 Images
- 20 Plot Generations
- Conversation with Dialogue Memory
- No Ads, Ever!
- Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Other questions asked by students
StudyZin's Question Purchase
1 Answer
$0.99
(Save $1 )
One time Pay
- No Ads
- Answer to 1 Question
- Get free Zin AI - 50 Thousand Words per Month
Best
Unlimited
$4.99*
(Save $5 )
Billed Monthly
- No Ads
- Answers to Unlimited Questions
- Get free Zin AI - 3 Million Words per Month
*First month only
Free
$0
- Get this answer for free!
- Sign up now to unlock the answer instantly
You can see the logs in the Dashboard.