Firm relax collection efforts if opportunity cost of funds

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Reference no: EM13974532

The Boyd Corporation has annual credit sales of $1.6 million. Current expenses for the collection department are $35,000, bad-debt losses are 1.5%, and the days sales outstanding is 30 days. The firm is considering easing its collection efforts such that collection expenses will be reduced to $22,000 per year. The change is expected to increase bad-debt losses to 2.5% and to increase the days sales outstanding to 45 days. In addition, sales are expected to increase to $1,625,000 per year.

Should the firm relax collection efforts if the opportunity cost of funds is 16% the variable cost ratio is 75%, and taxes are 40%?

Reference no: EM13974532

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