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Porras Pottery Products Inc spends $220000 per annum on its collection department The company has $12 million in credit sales its average collection period is 25 months and the percentage of

Porras Pottery Products, Inc., spends $220,000 per annum on its collection department. The company has $12 million in credit sales, its average collection period is 2.5 months, and the percentage of bad-debt losses is 4 percent. The company believes that, if it were to double its collection personnel, it could bring down the average collection period to 2 months and bad-debt losses to 3 percent. The added cost is $180,000, bringing total collection expenditures to $400,000 annually. Is the increased effort worthwhile if the before-tax opportunity cost of funds is 20 percent? If it is 10 percent?

May 12 2020 View more View Less

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