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Labowski's Long Boards Inc. makes high-quality skateboards for recreational use. It wholesales its ...

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Labowski's Long Boards Inc. makes high-quality skateboards for recreational use. It wholesales its ...

Labowski's Long Boards Inc. makes high-quality skateboards for recreational use. It wholesales its boards in groups of 10 for a package price of $1,500. Many of its customers have asked for credit terms to aid in purchasing the boards. The firm's finance department has estimated the following profile for its long boards and customer base:
   Annual sales:   10,000 long board packages
   Annual production costs per board package:   $1,000
   Lost sales if credit is not provided for customers:   1,200 long board packages
   Default rate if all customers purchase on credit:   4.00%

What is the profit margin if the firm has a credit policy? What is the change in the profit margin if the firm moves from a cash-only policy to a credit policy? What is the dollar value of bad debts the firm expects to accumulate over a year? Given the bad-debt dollar amount, what is the maximum average amount per customer that the firm should spend on credit screening?

Textbook

Financial Management: Core Concepts

Edition: 2^nd

Author: Brooks

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stranahan Author

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