Evaluate the proposed tightening of credit standards

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Reference no: EM131316843

Jeans Manufacturing thinks that it can reduce its high credit costs by tightening its credit standards. However, as a result of the planned tightening, the firm believes its annual sales will drop from $38 million to $36 million.

On the positive side, the firm expects its average collection period to fall from 58 to 45 days and its bad debts to drop from 2.5 percent to 1 percent of sales.

The firm's variable cost per unit is 70 percent of its sale price, and its required return on investment is 15 percent.

Assume a 365-day year. Evaluate the proposed tightening of credit standards, and make a recommendation to the management of Jeans Manufacturing.

Reference no: EM131316843

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