DISCUSSION PROBLEMS
Through its credit scoring procedures the Klimes Company classifies applicants for credit into groups according to risk. One group that has historically been denied credit has the following group characteristics.
- Average collection period of 59 days
- Bad debt expenses of 7.5% of sales
Klimes Co.’s variable costs equal 75% of their products sale price, and the firm requires an 18% pre-tax return on its investment in receivables.
If this risk group would generate an additional $500,000 in annual sales, should Klimes extend credit?
- 1994, HarperCollins Publishers