How much bad-debt losses will be reduced

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Question - XYZ, Inc., spends $300,000 per annum on its collection department. The company has $50 million in credit sales, its average collection period is 1.5 months, and the percentage of bad-debt losses is 3.0%. The company believes that, if it were to double its collection personnel, it could bring down the average collection period to 1 months and bad-debt losses to 2.5%. The added cost is $300,000, bringing total collection expenditures to $600,000 annually.

Required -

1- At MARR of 10%, what would be your recommendation?

2- How much bad-debt losses will be reduced if the expansion is adopted?

3- How much account receivable will be decreased if the expansion is adopted?

Reference no: EM133148839

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