Should pettit relax collection efforts at opportunity cost

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Reference no: EM13334655

The Pettit Corporation has annual credit sales of $2 million. Current expenses for the collection department are $30,000, bad debt losses are 2% and the days sales outstanding is 30 days. Pettit is considering easing its collection efforts so that collection expenses will be reduced to $22,000 per year. The change is expected to increase bad debt losses to 3% and to increase the DSO to 45 days. In addition, sales are expected to increase to $2.2 million per year. Should Pettit relax collection efforts if the opportunity cost of funds is 12% , the variable cost ratio is 75% and it's marginal tax rate is 40%? All costs associated with production and credit sales are paid on the day of the sale.

Reference no: EM13334655

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