A firm is considering relaxing its credit standards which will result in annual sales increasing from $1.50 million to $2.09 million. Costs of goods sold represent 77 percent of sales and the average collection period is expected to increase from 39 to 51 days. If the firm requires a return of 13.8 percent, what the cost of investing in the extra accounts receivables from the planned relaxation of credit standards? The answer is 14,000, however, need to understand the steps taken to solve it.
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