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What is the effect of the decision to tighten standards

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Question - The firm is considering a proposal to tighten credit standards. The marketing department estimates that if standards are tightened that annual sales will drop $42348 from the present level of $750,000. The variable cost ratio is 0.7 and will not change. Variable expenses related to collections and credit administration are projected at 1.45% of sales under the proposed standards. The bad-debt expense rate on both existing and incremental (lost) sales is estimated to be 0%. The DSO of 56 days is not expected to change and can be applied to any sales gained or lost due to a change in credit standards. The company's annual cost of capital is 15%. The value of one day's sales under the existing policy is $300. What is the effect of the decision to tighten standards on the value of 1-day's sales?

Reference no: EM133169043

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