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Shortening the credit period A firm is contemplating shortening its credit period from 30 to...

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Accounting

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Shortening the credit period A firm is contemplating shortening its credit period from 30 to 20 days and believes that, as a result of this change, its average collection period will decline from 36 to 25 days. Bad-debt expenses are expected to decrease from 1.7% to 1.1% of sales. The firm is currently selling 11,700 units but believes that as a result of the proposed change, sales will decline to 9,600 units. The sale price per unit is $58, and the variable cost per unit is $44. The firm has a required return on equal-risk investments of 25.3%. Evaluate this decision, and make a recommendation to the firm. (Note: Assume a 365-day year.) The reduction in profit contribution from a decline in sales is $ (Round to the nearest dollar. Enter as a negative number.) The benefit from the reduced marginal investment in A/R is $ (Round to the nearest dollar.) The cost savings from the reduction in bad debts is $. (Round to the nearest dollar.) The net profit or loss from implementing the proposed plan is $ (Round to the nearest dollar. Enter a negative number for a loss.) Is the proposed plan recommended? (Select from the drop-down menu.)

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