How do you set this problem up? Can you work through the steps and explain what you are doing on each.
Company XYZ is going to relax its credit standards. The propasal will increase sales by 20% from 10million. The average collection period is expected to increase from 35 to 50 days and bad debts are expected to increase from 2% of sales to 7%. The firms variable cost =60% of sales and fixed cost total 2.5 million per year. The oppurtunity cost is 16%. Assume a 365 day year. Determine net profit(cost) of the proposed relaxiation of credit standard.
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