30. A firm is considering relaxing credit standards, which will result in annual

Question

30. A firm is considering relaxing credit standards, which will result in annual sales increasing from $1.5 million to $1.75 million, the cost of annual sales increasing from $1,000,000 to $1,125,000, and the average collection period increasing from 40 to 55 days. The bad debt loss is expected to increase from 1 percent of sales to 1.5 percent of sales. The firm's required return on investments is 20 percent. Assuming a 365-day year, the firm's cost of marginal investment in accounts receivable is $______. (Please calculate the arithmetic solution and show your work)

Explanation / Answer

$5,556

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