Lewis Enterprises is considering relaxing its credit standards to increase its currently sagging sales.
As a result of the proposed relaxation, sales are expected to increase by 5 5% from 10 comma 000 10,000 to 10 comma 500 10,500 units during the coming year;
the average collection period is expected to increase from 30 30 to 45 45 days; and bad debts are expected to increase from 1 1?% to 3 3?% of sales.
The sale price per unit is $ 37 $37?, and the variable cost per unit is $ 26 $26. The firm's required return on equal-risk investments is 24.2 24.2%.
Evaluate the proposed relaxation, and make a recommendation to the firm. (Note: Assume a 365-day year.)