What marginal investment in accounts receivable will result

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Reference no: EM131176457

Accounts receivable changes without bad debts Tara’s Textiles currently has credit sales of $357 million per year and an average collection period of 58 days. Assume that the price of Tara’s products is $60 per unit and that the variable costs are $54 per unit. The firm is considering an accounts receivable change that will result in a 20.5% increase in sales and a 19.2% increase in the average collection period. No change in bad debts is expected. The firm’s equal-risk opportunity cost on its investment in accounts receivable is 13.1%. (Note: Use a 365-day year.)

a. Calculate the additional profit contribution from sales that the firm will realize if it makes the proposed change.

b. What marginal investment in accounts receivable will result?

c. Calculate the cost of the marginal investment in accounts receivable.

d. Should the firm implement the proposed change? What other information would be helpful in your analysis?

Reference no: EM131176457

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