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stranahan stranahan
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7 years ago
Travel and Tow Trailers Inc. makes small trailers for light-duty towing behind SUVs and small pickup trucks. Its trailers typically sell for $2,500. Many of its customers have asked for credit terms to aid in purchasing the trailers. The firm's finance department has estimated the following profile for its light-duty trailers and customer base:
   Annual sales:   10,000 trailers
   Annual production costs per trailer:   $1,500
   Lost sales if credit is not provided for customers:   2,000 trailers
   Default rate if all customers purchase on credit:   3.00%

What is the dollar value of bad debts the firm expects to accumulate over a year? Given this amount, what is the maximum average amount per customer that the firm should spend on credit screening?
A) $450,000; $45.00
B) $4,500,000; $450.00
C) $4,500,000; $$562.50
D) $450,000; $56.25
Textbook 
Financial Management: Core Concepts

Financial Management: Core Concepts


Edition: 2nd
Author:
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crackerspoppycrackerspoppy
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stranahan Author
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#2
7 years ago
Thank you very much for this. It's really helpful.
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