Thompson Ltd is considering relaxing its credit terms from the existing net 70 to 2/60 net 90 in hopes of securing new sales.
The following information should aid you in the analysis of this problem:
New sales level (all credit) $8 000 000
Original sales level (all credit) $7 000 000
Contribution margin 25%
Percentage bad debt losses on new sales 8%
New average collection period 75 days
Original average collection period 60 days
Additional investment in inventory $50 000
Pre-tax required rate of return 15%
Percent of customers taking cash discount 50%
Should Thompson produced with the change?
Ask the Tutor ACCA PM
Credit management
6y ago#1Please do not simply type out test questions and expect me to provide a full answer. You must have an answer in the same book in which you found the question. So ask about whatever it is in the answer that you are not clear about and then I will explain.
However this question could not possibly be asked in Paper PM.
The topic is Paper FM (and is covered in our free Paper FM lectures), but even in Paper FM it would not be asked in this form.
If you are studying for the ACCA exams (whether Paper PM or Paper FM) then you really should be using a Revision Kit from one of the ACCA Approved publishers (BPP or Kaplan), because they are full of past exam and other exam standard questions.
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