Porras Pottery Products, Inc., spends $220,000 per annum on its collection department. The company..

Porras Pottery Products, Inc., spends $220,000 per
annum on its collection department. The company has $12 million in credit
sales, its average collection period is 2.5 months, and the percentage of
bad-debt losses is 4 percent. The company believes that, if it were to double
its collection personnel, it could bring down the average collection period to
2 months and bad-debt losses to 3 percent. The added cost is $180,000, bringing
total collection expenditures to $400,000 annually. Is the increased effort
worthwhile if the before-tax opportunity cost of funds is 20 percent? If it is
10 percent?

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