Which the policy change would be beneficial

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Reference no: EM131997841

A credit policy proposal is expected to increase sales by $2,500,000 annually. The variable cost of these sales is $2,050,00 and bad debt losses will be expected to be 4.5%. The annual cost of capital is 10%

a) If inventories are expected to increase by $120,000 and receivables are expected to increase by $250,000, what is the expected, annual pre-tax net benefit of the change in policy?

b) What is the maximum bad-debt loss ratio at which the policy change would be beneficial?

c) If no increase in receivables or inventory were expected, what is the maximum bad-debt loss ratio at which the policy change would be beneficial?

Reference no: EM131997841

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