In an analysis of alternative credit-management policies, which of the following components will cause the net present value of receivables on credit sales to increase, if everything else remains constant?
A.
A tougher collections policy that reduces the bad debt loss ratio.
I got confused because I didn't read carefully, at first I Thought it was C because I thought it said a longer collection period, but then I realized it said a longer AVERAGE collection period. After I realized my mistake it was obvious.
Answer is A cuz, tougher the collection policy, company will not write off potential baddebts and hence the uncollected bad debts will remain as receivables in books. Thus NPV increases
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