Example of Relaxing Credit Standards Profitability of ( 5 contribution)x(4, 800 units) additional sales 24000 Additional ($120,000 sales)/(4 Turns)= receivables $30,000 Investment in ($20/$25)X($30,000)= add receivables $24,000 Req. pre-tax return (20%opp.cost)x$24,000= on add investment 4.800 Yes! Profits> Required pre-tax return 10-810-8 Example of Relaxing Credit Standards Profitability of ($5 contribution) x (4,800 units) = additional sales $24,000 Additional ($120,000 sales) / (4 Turns) = receivables $30,000 Investment in ($20/$25) x ($30,000) = add. receivables $24,000 Req. pre-tax return (20% opp. cost) x $24,000 = on add. investment $4,800 Yes! Profits > Required pre-tax return