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Pretorius Traders currently only sells on credit. Sales currently amount to R1 0...
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Pretorius Traders currently only sells on credit. Sales currently amount to R1 000 000 per year. The organisation’s current collection period is 30 days. Bad debts amount to 2 per cent of credit sales. The selling price is R50 per unit and the variable cost is R20 per unit.Management contemplates relaxing its credit standards. It is expected that this will result in a 10 per cent increase in credit sales, an increase in the collection period to 45 days and an increase in bad debt expenses to 4 per cent of credit sales.The required rate of return on equal-risk investments of the firm is 20 per cent.The cost of bad debts will change by …
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