Assignment from the Readings Week 4
14-9 Accounts receivable changes with bad debts A firm is evaluating an accounts receivable change that would increase bad debts from 2% to 4% of sales. Sales are currently 50,000 units, the selling price is $20 per unit, and the variable cost per unit is $15. As a result of the proposed change, sales are forecast to increase to 60,000 units.

a. What are bad debts in dollars currently and under the proposed change?
b. Calculate the cost of the marginal bad debts to the firm.
c. Ignoring the additional profit contribution from increased sales, if the proposed change saves $3,500 and causes no change in the average investment in accounts receivable, would you recommend it? Explain.
d. Considering all changes in costs and benefits, would you recommend the proposed change? Explain.
e. Compare and discuss your answers in parts c and d.

a. Bad debts in dollar currently de 50,000*$20.00*2%=1,000,000.00*2%=$20,000
Proposed debts to equal to 60,000*$20.00*4%=$1, 200,000*4%=$48,000
b. $48,000-$20,000=$28,000
c. No, a change would not be suitable because $28,000 in bad debt’s increscent saves $3,500 and for that, is no need for propose change.
d. Taking in consideration changes in costs and benefits, I would recommend it because its net earnings can be observed.
e. In part C the benefits of the increased sales, was not considered, therefore is why the proposed change was rejected. In part D, when the incremental benefits are taken into consideration, the total profit is greater than the increase of delinquency spending and for that reason, the plan is accepted.

15.9 Cost of bank loan Data Back-Up Systems has obtained a $10,000, 90-day bank loan at an annual interest rate of 15%, payable at maturity. (Note: Assume a 365-day year.)

a. How much interests (in dollars) will the firm pay on the 90-day loan?
b. Find the