Shortening the credit period A firm is contemplating shortening its credit period from 45 to...
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Shortening the credit period A firm is contemplating shortening its credit period from 45 to 35 days and believes that, as a result of this change, its average collection period will decline from 50 to 40 days. Bad-debt expenses are expected to decrease from 1.6% to 0.9% of sales. The firm is currently selling 12,500 units but believes that as a result of the proposed change, sales will decline to 10,400 units. The sale price per unit is $57, and the variable cost per unit is $44 The firm has a required return on equal-risk investments of 11.6%. 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.)
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