Reference no: EM133055375

Gold Rush Inc. is considering shortening its credit period from 30 days to 20 days and believes, as a result of this change, its average collection period will decrease from 36 days to 30 days. Bad debt expenses are also expected to decrease from 1.2 percent to 0.8 percent of sales. The firm is currently selling 300,000 units but believes as a result of the change, sales will decline to 275,000 units. On 300,000 units, sales revenue is Php 4,200,000, variable costs total Php 3,300,000, and fixed costs are Php 300,000. The firm has a required return on similar-risk investments of 15 percent.

In this Problem, calculate the over-all impact to the net profit as a result of shortening its credit period and make a recommendation to the firm whether to tighten the credit standard or not.