A firm is considering relaxing its credit standards which will result in annual sales increasing from $1.50 million to $2.19 million. Cost of goods sold represents 33% of sales and the average collection period is expected to increase from 36 to 52 days. The firm requires a return of 14.1%.
1. What is the effect of the proposal to relax credit standards on the turnover of accounts receivable
2. What is the effect of the proposal to relax credit standards on the average investment in accounts receivable