Answer Happy

Question content area top
Part 1
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
​$480,000
for sales and has
​$360,000
in variable costs. The change in credit terms is expected to
increase sales to
​$500,000.
​ Bad-debt expenses will increase from
1​%
to
1.5​%
of sales. The firm has a required rate of return
on​ equal-risk investments of
20​%.
​ (Note​:
Assume a​ 365-day year.)
a.  What additional profit contribution from sales will be
realized from the proposed​ change?
b.  What is the cost of the marginal investment in accounts
receivable​?
c.  What is the cost of the marginal bad
debts​?
d.  Do you recommend this change in credit​ terms?
Question content area bottom
Part 1
a.  The additional profit contribution from an increase in sales
is
​$enter your response here.
​ (Round to the nearest​ dollar.)
Part 2
b.  The interest cost of the marginal investment in​ A/R
is
​$enter your response here.
​(Round to the nearest​ dollar.)
Part 3
c.  The cost of the marginal bad debts is
​$enter your response here.
​(Round to the nearest​ dollar.)
Part 4
d.  The net profit from the proposed change in credit terms
is
​$enter your response here.
​ (Round to the nearest​ dollar.)
Part 5
Do you recommend this change in credit​ terms?  ​(Select
the best answer​ below.)
No
Yes