Evaluate the proposed tightening of credit standards

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Reference no: EM131558582

Jeans manufacturing thinks that it can reduce its high credit costs by tightening its credit standards. However, the firm believes that the planned tightening will result in a drop in annual sales from $38 million to $36 million. On the positive side, the firm expects it average collection period to fall from 58 to 45 days and its bad debts to drop from 2.5% to 1% of sales. The firm’s variable cost per unit is 70% of its sale price, and its required return on investment is 15%. Assume a 365-day calendar year. Evaluate the proposed tightening of credit standards, and make a recommendation to the management of Jeans Manufacturing.

Reference no: EM131558582

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