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Solarius Trading Company isconsidering lengthening its credit period from 30 to 50 days. Allcustomers will continue to pay on the net date. The firm currentlyhas $300,000 of sales per year, but believes that as a result ofthe proposed change, sales will increase to $360,000. Bad debtexpense will increase from 3% to 5% of sales. The variable cost is70% of sales. The firm has a cost of capital of 12%. Assume a360-day year.What is the incremental cost of investment in accountsreceivable?What is the incremental cost of the bad debts?Should Solarius lengthen its credit period from 30-50days?
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