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Should the firm extend the credit

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Question - A company makes only cash sales (i.e. it has no receivables.). It currently sells 1000 units per month at a sales price of $45 and a present value of costs of $35 per unit. Firm plans to allow credit sales to increase its sales to 1100 per month, in which case all sales will be made on credit and %5 of sales will end up being uncollectible after the 30 day payment period. If the discount rate is 1% per month, should the firm extend the credit? Assume that under credit sale production costs were paid at the time of sale and that outstanding receivables have an average of one month.

Reference no: EM132550727

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