A Firm Is Considering Relaxing Credit Standards, Which Will Result

Multiple Choice

A firm is considering relaxing credit standards, which will result in annual sales increasing from$1.5 million to $1.75 million, the cost of annual sales increasing from $1,000,000 to $1,125,000, andthe average collection period increasing from 40 to 55 days. The bad debt loss is expected to increase from 1 percent of sales to 1.5 percent of sales. The firm's required return on investments is20 percent. The firm's cost of marginal investment in accounts receivable is__________ .

A) $9,943
B) $5,556
C) $152,778
D) $12,153