Tara's textiles currently has credit sales of 360 million per year and a collection period of...

70.2K

Verified Solution

Question

Finance

Tara's textiles currently has credit sales of 360 million peryear and a collection period of 60 days. Assume that the price ofTara's products is $60 per unit and that the variable costs are $55per unit. The firm is considering an accounts receivable chargethat will result in a 20% increase in sales and a 20% increase inthe average collection period. No changes in bad debt is expected.The firm's equal risk opportunity cost on its investment inaccounts receivable is 14%.
A. calculate the additional profit contribuations from salesthat the firm will realize if it makes the proposed change
b. What marginal investment in accounts receivable willresult?
c. calculate the cost of marginal investment in accountsreceivable
d. should the firm implement the proposed change? What otherinformation would be helpful in your analysis?

Answer & Explanation Solved by verified expert

4.0 Ratings (423 Votes)

A Current volume of sales 360000000 60 6000000 units Increase in sales 6000000 x 20 1200000 units Additional profit contribution 1200000 x 60 55 6000000 B Accounts receivable turnover See Answer

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!

Become a Member