East lansing appliances expects to have sales this year

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Reference no: EM131553801

East Lansing Appliances (ELA) expects to have sales this year of $15 million under its current credit policy. The present terms are net 40; the days sales outstanding (DSO) is 50 days; and the bad debt loss percentage is 6 percent. Since ELA wants to improve its profitability, the treasurer has proposed that the credit period be shortened to 20 days. This change would reduce expected sales by $500,000, but it would also shorten the DSO on the remaining sales to 35 days. Expected bad debt losses on the remaining sales would fall to 5 percent. The variable cost percentage is $5 percent, and the cost of capital is 12 percent.

Reference no: EM131553801

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