Flint Distributors makes all sales on a credit basis, selling on terms of 2/10, net 30. Once a year, it evaluates the creditworthiness of all its customers. The evaluation procedure ranks customers from 1 to 5, with 1 indicating the “best” customers. Results of the ranking are as follows.
|% of Bad Debts||Days Sales|
Extended to Category
The variable cost ratio is 70%. and Flints marginal tax rate is 40%. The cost of capital invested in receivables is 12%. What would be the effect on the profitability of extending unlimited credit to each of categories 3,4 and 5?