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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 million, an increase in additional profit contribution from sales of $10,000, and an increase in the average collection period of 15 days, from 20 to 35 days. The bad debt loss is expected to increase from 1 percent to 1.5 percent of sales. The firms required return on investments is 15 percent. The new result of the firm’s relaxing its credit standards is

[A]      $10,000

[B]      16,250

[C]      26,875

[D]      16,875

Basic Finance, Finance

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