Bad debt expenses are expected to decrease from 15 to

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Unformatted text preview: f the firm’s required rate of return on equal-risk investments is 25%, should the proposed discount be offered? LG5 14–11 Shortening the credit period A firm is contemplating shortening its credit period from 40 to 30 days and believes that as a result of this change, its average collection period will decline from 45 to 36 days. Bad-debt expenses are expected to decrease from 1.5% to 1% of sales. The firm is currently selling 12,000 units but believes that as a result of the proposed change, sales will decline to 10,000 units. The sale price per unit is $56, and the variable cost per unit is $45. The firm has a required return on equal-risk investments of 25%. Evaluate this decision, and make a recommendation to the firm. LG5 14–12 Lengthening the credit period Parker Tool is considering lengthening its credit period from 30 to 60 days. All customers will continue to pay on the net date. The firm currently bills $450,000 for sales and has $345,000 in variable costs. The change in credit terms is...
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