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 […]
A firm is considering relaxing credit standards which will result in an increase in annual sales from $3 million to $3. 75 million, a decrease in the cost of annual sales from $2,225,000 to $2,000,000, an increase in additional profit contribution from sales of $10,000, and an increase in the average collection period of 15 […]
Credit Scoring Policy Jia’s Jewelry uses the credit scoring technique to evaluate retail applications. The financial and credit characteristics considered and weights indicating their relative importance in the credit decision are shown above. The firm’s credit standards are to accept all applicants with credit scores of 85 or more, to extend limited credit to applicants […]
Maggie’s Gold Coins, Inc is considering shortening its credit period from 30 days to 20 days and believes, as a result of this change, its average collection period will decrease from 36 days to 30 days. Bad debt expenses are also expected to decrease from 1.2 percent to 0.8 percent of sales. The firm is […]
If the level of bad debt attributable to credit policy is relatively constant, increasing collection expenditures can be expected to reduce bad debts. Indicate whether the statement is true or false ANSWER TRUE
A relaxation of credit standards is expected to affect profits positively due to lower carrying costs, whereas tightening credit standards would affect profits negatively as a result of higher carrying costs. Indicate whether the statement is true or false ANSWER FALSE
The increase in bad debts associated with tightening credit standards raises bad debt expenses and has a negative impact on profits. Indicate whether the statement is true or false ANSWER FALSE
The cost of marginal investment in accounts receivable can be calculated by finding the difference between the average investment in accounts receivable before and after the introduction of the changes in credit standards. Indicate whether the statement is true or false ANSWER FALSE
The cost of marginal bad debts is found by multiplying a firm’s opportunity cost by the difference between the level of bad debts before and after the relaxation of credit standards. Indicate whether the statement is true or false ANSWER FALSE
The key dimension of credit selection which analyzes an applicant’s record of meeting past obligations is ________. A) collateral B) capacity C) character D) capital ANSWER C
