Question: Jonah’s Boats, Inc. is considering relaxing its credit standards in order to meet a competitor’s alter in credit policy. As a result of the proposed change, sales during the coming year are expected to increase 15 percent, from 5,000 boats to 5,750 boats, the average collection period is expected to increase from 35 days to 45 days, & bad debts are expected to increase from 2 percent to 3 percent. The average sale price per unit is 1,000 dollar and the variable cost per unit is $850. The firm’s required return on investment is 10 percent.
Estimate the proposed change in credit standards and make a recommendation to the firm.